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2009

Summer Energy Market Summer Energy Market 

Reliability Assessment Reliability Assessment

Item No. A Item No. A-3

May 21, 2009 May 21, 2009

Slide 1

Mr. Chairman, Commissioners, good morning. 

This PowerPoint presentation will be posted on the Oversight section of FERC.gov

following this presentation. 
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NERC Forecast NERC Forecast

700

800

900

1000

YEAR 2003 2004 2005 2006 2007 2008 2009

Capacity (GW)

Forecast Demand Actual Demand Capacity

Source: Derived from NERC, 2009 Summer Reliability Assessment

Slide 2 

Reflective of the economic downturn, the 2008 actual load was somewhat less that the 2008 

forecast load. With this downturn expected to continue, the 2009 forecast is lower than the 

2007 and 2008 projections.

Since total capacity substantially exceeds both the expected actual and forecast demand, all 

regions have adequate reserves and expect to provide reliable service throughout the 2009 

summer months. 
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Vegetation Vegetation-Related Related 

Transmission Summer Transmission Summer 

Outages: 2006 Outages: 2006-08

0

1

2

3

4

5

6

7

8

FRCC MRO NPCC RFC SERC SPP ERCOT WECC

Number of Outages

<200 kV 230 kV

345 kV 500 kV Totals

2006 – 14

2007 – 22

2008 – 18

Source: Derived from NERC, 2009 Summer Reliability Assessment

2006-07-08 06-07-08 06-07-08 06-07-08 06-07-08 06-07-08 06-07-08 06-07-08

Slide 3 

One of the largest historical causes of outages is vegetation related issues. The ERO’s

Summer Assessment report shows that vegetation related outages continue to remain a 

concern. Of note, there has been little or no improvement in SERC and WECC regions since 

mandatory standards were enacted in 2007.
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Wind Resources Wind Resources 

for 2009 Summer for 2009 Summer

8.7%

0.0%

19.1%

16.4%

15.0%

0.0%

8.8%

20.2%

15.2%

0 ERCOT FRCC MRO NPCC RFC SERC SPP WECC NERC

5000

10000

15000

20000

25000

30000

35000

MW

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Nameplate Capacity (MW)

% of Nameplate Capacity Expected On-Peak

Source: Derived from NERC, 2009 Summer Reliability Assessment

Slide 4 

The expected average on-peak capacity for the 2009 summer is forecast to be 15.2 percent

of nameplate capacity, which represents an on-peak increase of 21.5 percent or 805 MW 

from the 2008 summer assessment.

The NERC Summer Assessment reports projected summer installed nameplate wind 

capacity will increase by 9,252 MW, or 45 percent from 2008 to 2009, for a total nameplate 

projected capacity across the nation of 29,945 MW. 

As wind resources are less predictable and follow the availability of wind rather than 

demand, different patterns in the use of transmission capacity can emerge. With the addition 

of over 9,000 MW of wind, the regions have projected an increase in transmission 

congestion for the 2009 summer, particularly during low demand periods. Some regions 

report the need to provide additional ancillary services, such as operating reserves, to 

address the challenges of managing the variability of wind resources. Albeit a challenge, the 

integration of these substantial wind resources is projected by NERC to be manageable for 

the 2009 summer.
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Source: Derived from NERC, 2009 Summer Reliability Assessment

Demand Side Demand Side 

Management Management

1.7

7.0 6.4

3.8

3.0 3.1

1.7

2.7

ERCOT FRCC MRO NPCC RFC SERC SPP WECC

0

1000

2000

3000

4000

5000

6000

MW

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

% of DSM to Total Internal Load 

Load as a Capacity Resource

Direct Control Load Management

Contractually Interruptible (Curtailable)

Critical Peak-Pricing with Control 

% of Demand Response to Total Internal Demand

Slide 5 

Demand response, which will be utilized to reduce peak load for the 2009 summer, is 

projected to increase by 8 percent. This is more than a 2,200 MW increase from last 

summer. NPCC and FRCC project significant increases in demand response while ERCOT, 

MRO, SERC, SPP, and WECC projections remain relatively flat.
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Summer 2009 Forward Summer 2009 Forward 

Prices Lower Than 2008 Prices Lower Than 2008 

Actual Prices Actual Prices

Southern California (SP-15)

$51.34/ $51.34/MWh -48%

Northwest (Mid C)

$42.27/MWh -44%

PJM Western Hub

$63.43/ $63.43/MWh -40%

New York City

$78.00/ $78.00/MWh -49%

Massachusetts Hub

$58.36/MWh -48%

Midwest ISO (Cinergy)

$49.14/MWh -43%

Palo Verde

$50.81/ $50.81/MWh -47%

Sources: Summer electric forwards data is July-August 2009 data from ICE as of 05/13/09. Actual on-peak data for 2008 are from Platts Megawatt Daily. 

Henry Hub (Gas) Henry Hub (Gas)

$4.54/MMBtu -54%

Slide 6 

I am going to discuss the prospects for energy markets this summer.

Last year at this time, we saw market participants paying high prices to secure supplies for 

the summer. This year the market has stepped back. Forward prices indicate that people are 

able to purchase summer power today at prices about half of what they were last year. In 

fact, in most regions, forward power prices now are far below where they’ve been in years. 

We haven’t seen prices this low in New York and PJM since 2004. The last time forward 

prices were this low in the West, at SP-15, Mid Columbia and Palo Verde, was 2002. 

Expectations for lower power prices this summer is chiefly attributable to weaker market 

fundamentals affecting loads and fuel prices. The next slide shows the drop in fuel prices.
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Gas Prices Are Low and Gas Prices Are Low and 

Supplies Are Abundant Supplies Are Abundant

Source: Derived from Bloomberg.

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3

6

9

12

15

18

21

24

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J A J O J A J O J A

Price ($/MMBtu)

WTI Crude Oil

Henry Hub Natural Gas

Central App Coal

PRB Coal PRB Coal

2007 2008 2009

Slide 7 

Fossil fuel prices, across the board, are 50 to 80% lower than last year at this time. Like 

electricity, gas prices have dropped to levels not seen in years. Recent bid week prices have 

averaged less than $4/MMBtu at every pricing point in the country, though there has been a 

slight reversal of this pricing trend recently.

Oil and coal prices have also declined from their unprecedented 2008 highs as inventories 

have grown. U.S. crude oil stocks are 14% above last year’s levels; according to Stifel, 

Nicolaus, an equity research firm, electric generator coal stockpiles exceed last year’s levels 

by 17% and exceed their 10-year average by 29%.

With lower prices for gas, we have not seen much of a decline in gas demand. While 

industrial demand has fallen over the past several months relative to last year, demand for 

gas to fuel electric power plants has been increasing as gas prices have, as indicated in this 

chart, become increasingly competitive, not only with oil but also, on a regional basis, with 

coal. 

Yet, natural gas supplies are abundant heading into the summer months. Last week, the 

Energy Information Administration reported storage levels of 2,013 Bcf, 23 percent above 

the five-year average and only 3 percent below the all time high for this early in the 

injection season. Inventories would have to increase at an average of about 60 Bcf/week to 

meet all time highs at the beginning of heating season. Recently, we have seen injections of 

about 100 Bcf/week.
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Productive capability associated with last year’s unprecedented drilling will still be at high 

levels. Many companies have cut back on drilling (the rig count has fallen by more than half 

since last year’s peak), but many of the new wells brought online last year will still be 

active. 

We are expecting a reemergence in LNG imports. LNG imports are already twice as high as 

last year; the global LNG market has excess supply available due to lower worldwide 

demand, full overseas inventories, and the addition of new LNG liquefaction capacity; and 

due to its size, maturity, and flexibility, the US is one of the few places able to absorb 

excess LNG. 

Last year, utility gas supply managers faced the dilemma of having to replenish a large 

percentage of their storage capacity in the face of rising gas prices. This year, both the 

capacity that needs to be replenished and the cost of gas to replenish it are down. Robust 

inventories mean less gas will have to flow to storage during those days that downstream 

gas-fired generators are running their hardest.
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NOAA’s Current Mid s Current Mid-summer 

Outlook Indicates Warmer than Outlook Indicates Warmer than 

Normal Weather on the Coasts Normal Weather on the Coasts

Source: NOAA, April outlook for June, July, and 

August, April 16, 2009.

Equal chances 

for A, N, B

Above

Normal

Below

EC =

A = 

N = 

B = 

Slide 8

Always the largest wildcard going into the summer is weather. There is some disparity in forecasts 

regarding the outlook for the country east of the Continental Divide; as shown in this slide, The 

National Oceanic and Atmospheric Administration sees a warm summer on the East Coast, but other 

forecasting services are predicting more normal temperatures. On the other hand, there appears to 

be a general consensus that it will likely be a warm summer in the West.

Last year, a late snowmelt increased the availability of hydro power during the months when cooling 

load began ramping up. Snowmelt patterns in the West are closer to normal this year; therefore, we 

would expect an incremental increase in demand for gas-fired generation early this summer. This 

increase should be accommodated with the high reserves of gas sitting in Western storage. The fields 

could easily be filled by July except for storage operator restrictions on fill rates.

As always, hurricanes can change the market by closing wells and disrupting supply chains. Last 

year’s hurricanes Gustav and Ike were particularly disruptive, interrupting 2.9 Bcfd, approximately 

5% of US supplies. Although NOAA has not released its hurricane season forecast, other 

meteorologists are saying that the hurricane season will be slightly less active than normal. 

Nonetheless, the supply outlook is much more robust this year due to geographic diversification of 

gas production. Specifically, the combination of new Rockies supplies flowing eastward coupled 

with a more unconventional gas flowing from East Texas and northern Louisiana makes the US 

much less susceptible to devastating Gulf hurricane outages. Moreover, Florida now has access to 

liquefied natural gas stored at Elba Island via the Cypress Pipeline. In 2005, 20% of total U.S. 

production was from federal waters in the Gulf, compared to about 13% last year.
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Milestones for Milestones for 

Monitoring Monitoring

 CAISO MRTU

 Energy efficiency in Energy efficiency in PJM’s forward forward 

capacity auction capacity auction

 Southern Company energy auction Southern Company energy auction

 Rockies Express Pipeline extension Rockies Express Pipeline extension

Slide 9 

I also want to take a couple of minutes to note a few market milestones that have recently 

occurred or are planned for this summer that Market Oversight will monitor.

Market Oversight has been paying close attention to California’s transition to its MRTU 

market. We have spoken to market participants, and there appears to be a sense that the 

day-ahead market is functioning smoothly and that the pricing signals it is producing reflect 

system conditions. With the real time market, however, significant, intermittent price spikes 

in the San Diego region have caused concern and indicate technical issues with MRTU that 

need to be worked through. The Cal-ISO is working to resolve these issues, and we have 

been in almost daily contact with the ISO and the market monitor. Market Oversight will 

continue to closely monitor the evolution of the MRTU as we proceed into the summer 

months.

For the first time, PJM included energy efficiency as a resource in its May forward capacity 

auction. The Commission approved this change in March. Last year’s ISO-NE’s capacity 

auctions for 2010 and beyond showed that energy efficiency could be incorporated as a 

valuable resource accounting for 30% of the demand resource capacity cleared. Initial 

accounts from PJM’s auction indicate that energy efficiency projects accounted for 10% of 

the demand resources cleared.
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Outside the organized markets, late last month, Southern Company initiated its energy 

auction system which the Commission approved last December. OEMR and OE staff 

attended the launch and met with the auction administrators and the Independent Auction 

Monitor. We have observer status online to observe auction results, and we will continue to 

assess the progress of this experiment. 

On the fuel supply side, the Rockies Express Pipeline is expanding eastward, with a planned 

online dates by this summer for interconnections in Illinois, Indiana and Ohio. The opening 

of the first phase of REX had a major impact on the balance of gas supplies, the value of 

transportation, and, therefore, the price of gas to consumers in the Rockies, Midwest, 

Southwest and California. This next phase of REX will establish greater connectivity 

between Western and Eastern markets and could narrow transportation differentials from 

the Rocky to the Appalachian mountains and displace Gulf gas, affecting gas prices at the 

Henry Hub. We have already seen some hints of the market prices adjusting to the new 

capacity—the basis between the Rockies and Appalachia has fallen by 1/3rd.
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Item No. A Item No. A-3

May 21, 2009 May 21, 2009

2009

Summer Energy Market Summer Energy Market 

Reliability Assessment Reliability Assessment

Slide 10 

This concludes our presentation, we’d be happy to answer any questions.