1

Item No: A-3

May 19, 2011 May 19, 2011

FEDERAL ENERGY REGULATORY COMMISSION

Summer 2011 Summer 2011

Energy Market and Energy Market and 

Reliability Assessment Reliability Assessment

Mr. Chairman, Commissioners, good morning. We are pleased to present the joint 

Summer 2011 Energy and Reliability Assessment.
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Key Takeaways Key Takeaways

 Demand forecasts essentially 

unchanged;

 Adequate reserve margins; 

 Drought conditions expected in Texas 

and the Southwest; 

The key takeaways from today’s presentation are as follows:

•Demand forecasts are essentially unchanged when compared to last year;

•Generation reserve margins are projected to be adequate for the summer;

•Drought conditions are expected in Texas and the Southwest, but are not yet 

projected to affect power generation;

Continuing...
3

Key Takeaways Key Takeaways

[Continued] [Continued]

 Forward energy prices show 

movement;

 Abundant Hydro production in the 

West; and

 Market impacts from new 

infrastructure.

•While the movements in forward electric prices differed by region, forward gas 

price movements were more uniform;

•Abundant hydro production will lower electric prices in the West; and, finally,

•New infrastructure will have market impacts. 

I now turn it over to David Andrejcak..
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Demand and Capacity Demand and Capacity

0

200

400

600

800

1000

2003 2004 2005 2006 2007 2008 2009 2010 2011

GW

Forecast Net Internal Demand

Actual Demand Forecast Capacity

Source: Preliminary data from NERC 2011 Summer Assessment

Thank you Alan.

Preliminary data from NERC’s Summer Assessment indicates that the 2010 U.S. 

actual non-coincident peak load was 2.7 percent more than the 2010 forecasted 

load, due to hot weather in some parts of the country. This year, some areas, 

such as Texas and the Southwest are projecting a small amount of load growth 

over last year’s forecast, while loads in other areas, such as the Pacific 

Northwest, are projected to decline slightly. Overall, NERC forecasts that the 

total U.S. load, when weather adjusted, will rise by less than one percent when 

compared to last year, while the capacity available on peak is projected to rise by 

three percent.
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Factors That May Factors That May 

Affect Reliability Affect Reliability

 Reserve margins projected to be 

adequate

 Water levels projected to be sufficient in 

Northwest and Southeast

 Drought begins to affect Texas and the 

Southwest

Forecasted reserve margins are 14 percent in ERCOT, 24 percent in WECC, 33 

percent in FRCC, 25 percent in MAPP, 21 percent in MISO, 19 percent in NPCC, 26 

percent in PJM, 21 percent in SPP, and 29 percent for the areas of SERC that are 

not part of the MISO or PJM RTOs. Target reserve margins vary by region, and 

NERC is projecting that all regions will meet their reserve margin targets this 

summer. 

The Southeast has recovered from the 2008 drought, and water conditions are 

now at or near normal levels. Alan will discuss the Northwest hydro conditions 

later in the presentation, but in short, runoff from the heavy winter snowfall is 

expected to support sufficient hydro generation this summer.

In Texas and the Southwest, NERC projects that drought conditions will continue 

through the summer. Severe droughts rarely affect the reliability of the bulk 

power system, but in some cases water restrictions can affect generator 

performance levels. At this time, NERC forecasts that reserve margins will be 

adequate, and does not expect the drought to significantly affect operations in 

these areas.
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Wind Resources for Wind Resources for 

Summer 2011 Summer 2011

0

5

10

15

20

25

30

35

2008 2009 2010 2011

Wind Capacity (GW)

TOTAL NAMEPLATE CAPACITY

CAPACITY PROJECTED ON-PEAK

Source: Preliminary data from NERC 2011 Summer Assessment

The NERC Summer Assessment reports that the projected summer installed 

nameplate wind capacity will increase by about 2.6 GW, or 7.8 percent from 2010, 

for a total nameplate capacity across the nation of approximately 37 GW. 

The average on-peak wind capacity for the 2011 summer is forecast to be 13.2 

percent of nameplate capacity. The on-peak capacity forecasts reflect the 

differing wind characteristics across the country, and range from lows of 3.7 

percent of nameplate capacity in the Southwest Power Pool and 8.7 percent of 

nameplate in ERCOT, to a high of 34 percent of nameplate in Mid-Continent Area 

Power Pool.
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2011 Demand 2011 Demand-Side 

Management Management

Source: Preliminary data from NERC 2011 Summer Assessment

Direct Control Load Mgmt

Contractually Interruptible

Load as a Capacity Resource

0

2

4

6

8

10

12

14

Eastern ERCOT Western

Controllable Demand 

Response (GW)

0%

1%

2%

3%

4%

5%

Percent of Total 

Internal Demand

NERC projects that demand-side management available to reduce peak load for 

the 2011 summer will increase by about 13 percent to about 34 GW. This change 

is primarily driven by increases in demand participation in the PJM and Midwest 

ISO market areas.

Alan...
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Electricity Prices Electricity Prices

Forwards for Summer Peak Months Forwards for Summer Peak Months

Source: ICE July-August Strip as of May 1

Hub Location 2010 

Price Change

Massachusetts $ 22%

New York City $ 11%

PJM West $ 15%

Cinergy $ 12%

Palo Verde $ -8%

Mid C $ -34%

SP-15

New England

New York

PJM

Midwest

Southwest

Northwest

Southern Calif.

49.78

70.50

55.01

42.00

48.43

47.08

$ 49.72

2011 

Price

$ 

$ 

$ 

$ 

$ 

$ 

60.62

78.22

63.00

47.00

44.55

31.20

$ -5% 47.03

Thank you, David.

I will now turn to the outlook for electric prices. We look at forward electric prices for the peak 

summer months of July and August for perspective on how market participants currently view the 

dynamics affecting seasonal prices. We do not view forward prices as a predictor of actual day 

ahead prices, but analyzing the trends in the forward prices can help us understand market 

factors heading into summer.

Compared to summer forward power prices this time last year, 2011 prices are mixed; they are 

higher in the East and lower in the West. These price changes are reflective of the regional 

differences in resources and are consistent with the current market fundamentals. More 

specifically, natural gas is the marginal price setting fuel in much of the country. The forward 

price of gas is up 17% from last year, as we will discuss, and the rise in the Eastern power prices 

mirrors the rise in gas prices. As a result, Eastern forward power prices are up by 10 to 18%, 

compared to last year.

Conversely, prices are down in the West based on the expectation of a substantial amount of 

hydro generation this summer as I will discuss in a few moments. Hydro production can be the 

single most important factor influencing power supplies and prices in the Pacific Northwest and, 

to some extent, the West as a whole.

As a perspective on the larger scheme of things, we note that just three years ago forward power 

prices across the country were more than twice what they are today--all regions over $100 per 

MWh and as high as $175 per MWh in New York City.
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Natural Gas Prices Natural Gas Prices

Forwards for Summer Peak Months Forwards for Summer Peak Months

Source: Nymex and Clearport

Hub Location 2010 

Price Difference

Transco-Z6 NY New York and 

New England

PJM

Appalachia

Midwest

Southwest

Northwest

Southern Calif

Tetco M3

TCO

Chicago

SanJuan

NWP Sumas

Socal

Henry

4.55

4.48

4.19

4.14

3.90

3.95

4.16

4.10

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

5.18

5.10

4.87

4.82

4.51

4.34

4.75

4.78

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

0.63

0.62

0.68

0.68

0.61

0.39

0.59

0.68

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

2011 

Price

As of May 1, natural gas forward prices for the major U.S. hubs are about forty to 

seventy cents higher for this summer than a year ago. Production is at a high 

level, largely from Marcellus shale, but the increase in production may be just 

enough to offset growth in underlying demand while storage levels are eight 

percent lower than last year at this time. A large part of the increased demand is 

from greater power production. Additionally, particularly recently, we have seen 

the reemergence of the effects of financial fundamentals in the gas market. In 

fact, like many commodity markets, these forward prices have fallen about 10% 

since May 1. Note that the level of change is relatively constant across regions, 

which reflects the trend toward a more national market. Later I will describe 

some of the infrastructure enhancements that are contributing to this national 

market.
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Pacific NW Hydro Pacific NW Hydro 

Production Production

Source: Derived from USACE data reflecting the output of the 24 largest facilities. Note: Trend lines are 7-day moving averages. Thousands of MWh

5-Year Range 

2006-2010

2011 Output 2011 Output

2010 Output 2010 Output

J F M A M J J A S O N D

50

100

150

200

250

300

350

400

0

Abundant hydro supply has placed downward pressure on prices in the West and is 

expected to continue doing so through most of the summer. Average snowpack in 

the Pacific Northwest and British Columbia were as much as 151 percent of normal 

as of April 28. Forecasts for runoff this spring and summer call for flows on the 

Columbia River at The Dalles Dam at 123% of normal. Increased hydroelectric 

production generally reduces the need for natural gas-fired generation in the 

Pacific Northwest and California.

California’s snowpack levels were over 171% of normal as of April 28. California 

routinely relies on imports from outside the state, including the Northwest, during 

the summer. More plentiful internal hydropower will tend to decrease the need 

for imports from the Northwest, all else being equal. Still, the availability of low 

cost supply from the Northwest can be expected to cause congestion on the 

Pacific AC and the Pacific DC Interties, though the effect should be limited in 

California due to the relatively robust internal supplies.
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NOAA Forecast NOAA Forecast

Warm Temperatures in the West and Parts of the 

Southeast and an Active Hurricane Season

Source: NOAA Three Month Outlook-Official Forecast for Jun-Jul-Aug 2011 issued April 21, 2011.

Equal 

chances 

for A, N, B

Above

Normal

Below 

EC =

A = 

N = 

B = 

Equal 

chances 

for A, N, B

Above

Normal

Below 

EC =

A = 

N = 

B = 

The National Oceanic and Atmospheric Administration is calling for a warm 

summer from the Rockies westward and in the southwest and much of the 

southeast. A pocket of below normal temperatures is forecasted for the Ohio 

Valley and parts of the Midwest.

Forecasters are predicting an active hurricane season once again as early 

estimates range from 15-16 storms and 8-9 hurricanes. Last year, as predicted, 

was a very active one, but no hurricanes made U.S. landfall as most of the storms 

remained in the Atlantic and there was a negligible effect on oil and gas 

operations in the Gulf of Mexico. Overall, the risk to U.S. natural gas supply of a 

Gulf hurricane continues to decline as the share of production from onshore 

basins--out of the range of hurricanes--has more than doubled since Hurricanes 

Katrina and Rita in 2005. 

One result of an active hurricane forecast is that NOAA is predicting above 

average rainfall for the East Coast from Florida to Delaware. Below normal 

precipitation is expected this summer for the Pacific Northwest.
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Market Highlights Market Highlights

 Infrastructure Additions are Expected to 

Add Electric and Gas Deliverability;

• TrAIL Project-in PJM;

• Florida Gas Pipeline-Expansion into Florida;

• Ruby Pipeline-Rockies to West Coast.

 First Energy Ohio Territory is Joining PJM.

Lastly, we will be tracking a number of infrastructure and market changes that could impact the 

energy markets this summer. 

In PJM the Trans Allegheny Interstate Line, better known as the TrAIL project, is due to come on 

line by June 1 to help alleviate congestion between the western and eastern parts of PJM. Cited 

in 2006 by PJM as needed to maintain reliable service in parts of Virginia, Maryland, Pennsylvania, 

and West Virginia, this 218 mile 500 kV line was developed through the RTO’s Regional 

Transmission Expansion Plan process. This new line, in addition to enhancing reliability, is 

expected to lower congestion costs in the BGE, Pepco, and Dominion zones and other parts of 

PJM’s eastern footprint.

On the gas side, Florida Gas Transmission placed into service on April 1 a 483 mile expansion 

starting in Alabama and transversing the length of Florida. This new pipeline will add 820 MMcf/d

of gas transmission capacity into Florida, a 35% increase. The new capacity is expected to reduce 

price spikes, particularly those associated with power generation during high electric demand. 

Power generation accounts for 85% of gas consumed in the state.

Another Gas Transmission project of note is El Paso’s Ruby Pipeline. After some construction 

delays, this new pipeline connecting the Rockies gas fields at Opal with gas systems serving the 

west coast near the Oregon-California border is expected to be in operation by July 1. This 42-

inch, 675-mile pipeline will have an initial capacity of 1.5 Bcf/d. The utilization of this new 

pipeline going forward will be affected by other recent infrastructure and market developments 

that have created a competitive national market.

Also of market monitoring interest this summer is the integration of the Ohio portion of 

FirstEnergy into PJM beginning on June 1. This realignment will move the border between MISO 

and PJM where flows are coordinated between the two RTOs. As this active transmission region 

shifts from one market to the other, we will be watching for impacts on congestion costs and 

effects on prices in the west-to-east corridor.
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Item No: A-3

May 19, 2011 May 19, 2011

FEDERAL ENERGY REGULATORY COMMISSION

Summer 2011 Summer 2011

Energy Market and Energy Market and 

Reliability Assessment Reliability Assessment

This concludes our presentation. We would like to express appreciation to the 

many members of the Offices of Reliability and Enforcement who contributed to 

the preparation of the Summer Assessment.

We will be glad to take any questions you may have.

Thank you.