Summer Energy Market Assessme

Office of Market Oversight and Investigat

Federal Energy Regulatory Commissio

Presented to:

Federal Energy Regulatory Commission

Washington, DC

June 17, 2004
Summer Assessment Overview

 This summer may be difficult for energy customers g

for high fuel and electric prices.

 The Commission has taken actions since the marke

2000 – 2001 that will help avert a recurrence of misb

 The public will demand and deserves explanations f

they will face this summer.

 OM

OI h

a

s identified 9 priority items towards which w

special attention to maintain effective market oversigsummer.
Markets Indicate Electricity PriRemain Fairly High Through Su

PJM West Historic Prices and F

utures Price Curve Goi

n

$0

$20$40$60$80

$100$120$140$160$180

Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 A

Price ($ per MWh)

Av

era

g

e P

e

a

k H

o

urly Pric

e

Source: NY

M

E

X, PJ

M.
Futures Prices of Electric Fuel SIndicate Price Pressure Will Con

0

102030405060

Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04

Price ($ per short ton)

NY

MEX 

Central

Appalachia

Coal Futures 

6/3/2004

Big Sandy 

River,

West

Virginia

Historic an

d

F

utures Prices F

or Natural Gas 

G

oin

g into Summer 2004

Historic an

d

Historic an

d

F

utures Prices F

or C

oal 

G

oin

g into Summer 200

4

$0$1$2$3$4$5$6$7$8$9

$10

4/1/1998 4/1/1999 4/1/2000 4/1/2001 4/1/2002 4/1/2003 4/1/2004

Price ($ per MMBtu)

Henry Hub Cash Price

Henry HubFuturesSettlement Price on 6/3/04

$0$2$4$6$8

$10$12

Apr-98 Apr-99 A

Price ($ per MMBtu)

S

ource: Natural gas –

Platts GA

Sdat, Platts Gas Daily; Crude and fuel oil –

Bloomberg, L.P., Platts Gas Daily; Co
Commission Actions Since 2000 RTO/ISO Mitigation Programs Promote Open and Competitive 

 Quality of price infor

mation available to energy marke

last year:

• Company processes are improving and data reported h

 New Behavior Rules decrease likelihood of manipula

• Behavior Rules for buyers and sellers of electricity and 

the Commission December 2003.

• Remedies include loss of profits or even loss of authorit

 New Standards of Conduct requirements to take effe

• Separate transmission businesses of pipeline and utility 

marketing, sales and other unregulated businesses.

• Implementation is already underway.

 Mitigation programs have evolved beyond basic bid c

• All I

SOs and RTOs include some form of bid cap and m

address local market power.

• Some ISOs and RTOs also incorporate ex-ante offer pr
California Electric Supply Appefor this Summer

 Low reserve margins due, in part, 

to inadequate construction of generation and transmission given 4% load growth

 Outside-California hydroelectric 

generation tight this year.

 Conservation and demand 

response programs appear to have declined.

 Already tight power supplies may 

be particularly tight in southern California due to:

• Congestion i

n SP15 limits 

import flexibility

• Derate

of Pacific DC Intertie for 

mai

ntenance

• Lower hydro supplies i

n

southern portion of state

CAISO Sum

m

e

Source: CAISO 2004 Summer Asses

s

ment, April 16, 2004.
Commission Staff will Monitor PJM’s Integration of ComEd

 Integration adds complexity to peakperiod dispatch and market 

operations.

 PJM generation should increase 

competition in less robust northern Illinois markets.

 Generation in the ComEd

control area 

should complement PJM supplies, increasing dispatch efficiency.

 Integration has started s

moothly under 

low and moderate load conditions.

 Unanticipated challenges already 

encountered, such as confusion over the 500 MW pathway.

PJM Con
NYC and Long Island Markets FOperational Complexities and PMarket Uncertainties

 Operational complexities

• Slim capacity margins --

though slightly better than past years

• Strong Q1 2004 New York 

City economic growth could signal higher-than-expected load growth. 

• Reliable operation requires 

coordination among NYI

SO, 

PJM, and ISO-N

E.

9095

100105110

Summer 2001 Summer 200

Expected Supply

(percent of amount needed to reliably meet expected load) New York City Long Island State- wide

Source: NYISO

NYISO Summer Load and Capa2001 - 2004

• Communication protocols between ISO

s were reviewed a

• Branchburg transformer derating in PJM may limit transfe• Cross Sound Cable unavailability.

 Policy uncertainties

• Status of Norwalk CT –

Northport NY line replacement

• Cross Sound Cable/Secretary of Energy determination.

 Market uncertainties

• Possibility that NYISO scarcity pricing will activate for first 

• Refinements to NYC bid mitigation may reduce amount o

• Status of Cross Sound Cabl

e

Source: Economic growth data, Federal R

eserv

e Bank of Ne

w York website.
Natural Gas Price Could be Morthis Summer than Last

 Concern remains regarding U.S. productive capacity Hot weather this summer could r

esult in periods of i

natural gas for electric generation – increased depegeneration could make volatility more significant this 

 Anticipated winter demand will make storage refill a 

with little regard to price.

T

otal U.S. W

ork

0

500

1,0001,5002,0002,5003,0003,500

Apr May Jun Jul 

Volume (Bcf)

 Storage is in better shape this 

year compared to last (365 Bcf above the 2003 level of 1,119 Bcf as of May 30, 2004).

 Together, storage and electric 

demand could result in shortterm competition for gas supply.

S

ource: OMOI analysis;

EIA, Historical Weekly Storage Estimates D

atabase, EIA, Weekly Natural Gas Storage R
Regional Issues Could Emerge BLocal Capacity and Consumptio

• See pre

vious

slide on Californi

a

• Load pockets: 

Las Vegas, Yuma, Phoenix, and Tucson 

• R

eliance on 

imports t

o m

eet

resource require

ments in

Wisconsin-UpperMichigan (

W

UMS)

• In

C

• A 

pcp

• S

b

• Below n

ormal

hy

dro conditions

• Strande

merchangenerati
OMOI’s Planned Monitoring PrAnticipate Summer 2004 Condit

 National electricity prices and trading activity Natural gas storage injections and reporting Hydroelectric generation in the Western U.S. California electric markets Electric fuel prices and trading activity

• Natural gas• Fuel and crude oil• Coal

 Progress in ComEd’s integration into PJM New York City markets Local market activity:

• Load pockets• Transmission congestion• Generation outages

 Other, non-public priorities
Contributors• Stacy Angel• Lee-Ken Choo• Judy Eastwood• Charles Faust• Ted Gerarden• Sidney Givens• Jesse Halpern• Sean Horvath• Alan Haymes• Lance Hinrichs• Kenneth Kohut• Michael McLaughlin• William Meroney

• Steven Michals• Lisa Carter Moerne• Kara Mucha• Christopher Peters• Thomas Pinkston• Thomas Rieley• Harry Singh• Julia Tuzun• Carol White• Charles Whitmore• Dean Wight• Cyndy Wilson