2004/05 Winter Energy Market A

November 18, 2004

Office of Market Oversight and Investiga

Federal Energy Regulatory Commissio
2004 • 2005 Winter Energy Market Assessment

OMOI’s Winter Assessment: Market’s behavior is consistent witcommodity markets under tight con

 Supply Adequacy. Despite record storage levels, marke

supply/demand balance appear to be driving prices. Constatus of production, demand growth and weather. 

 Status of Trading.

S

peculative f

utures tradi

ng has proba

volatility. We have found no evidence of sustained price l

 Infrastructure. Market signals suggest that with severe c

be congested into the Northeast. The most significant coa repeat of the extreme conditions in January 2004.

 Electric Markets. Higher gas, oil, and coal fuel prices are 

prices nationally.
2004 • 2005 Winter Energy Market Assessment

Uncertainty and supply tightness appear to be driving markets

 The economy is growing and 

continues to drive demand. 

 Despite drilling increases, 

experts estimat

e flat t

o decli

ning 

year-on-year domestic production: 

• EIA: 0%• Lehman Brothers -2% • CERA -5%

 Uncertainty about production 

appears to be overcoming the beneficial effects of record storage levels.

16.5

17

17.5

18

18.5

19

19.5

20

1990 1991 1992 1993 1994 1

Yearly Dry Gas Production (Tcf)

Sources: Platts, N

YME

X, EIA 

Short-Term Energy Outlook, October, 2004,

CERA 

North American Natural Gas Monthly Briefing, October 18, 2004,

Leh

man Brothers 

Oil & Gas Industry Update, October 13, 2004.

$4.00$5.00$6.00$7.00$8.00$9.00

$10.00

1/1/04 2/1/04 3/1/04 4/1/04 

Price ($/MMBtu) 

Henry Hub Prompt Month Futures Price

Henry Hub Spot

Prices on ICE
2004 • 2005 Winter Energy Market Assessment

How has the supply and demand bachanged since last winter? Weathekey. 

 Increased residential and 

commer

cial demand and gas-fired 

generation.

 Most optimistic supply outlook has 

production flat with last winter.

 Demand higher than supply signals 

likely higher prices. 

 Some surveys based on reported 

production have shown significant production declines.

 Tighter supply would increase 

pressure on prices.

Yea

W

Pro

d.

N

et Pipeline 

Im

p

orts

LNG

-0.60-0.40-0.20

0.000.200.400.600.80

(Tcf)

Yea

P

Pro

d.

Net Pip

elin

e

Imports

LN

G

-0.60-0.40-0.20

0.000.200.400.600.80

(Tcf)

Sources: O

MOI analysis of 4th qtr. 2004 and 1st qtr. 2005 compared to 4th qtr. 2003 and 1st qtr. 2004 from EIA

Sho

October 2004. Pessimistic supply extrapolated by O

MOI from Lehman Brothers Q3’04 Natural Gas Production a
2004 • 2005 Winter Energy Market Assessment

Alternative fuel prices have moved and faster than natural gas

 Oil price increases in the 

summer were not matched by gas –

but fall movement 

upward was.

 Gas has traded between 

distillate and resid for several years, and recently has remained near the lower end of the price range.

 Recent weakness in oil prices 

has been matched by gas.

 These prices suggest that gas is 

facing common concerns and issue

s with other fuels.

Sources: O

MOI analysis of data from Bloomberg and Platts.

$0$2$4$6$8

$10$12$14

1/1/2003 3/1/2003 5/1/2003 7/1/2003 9/1/2003 11/1/2003 1/

New York Delivered Energy Prices ($/MMBtu)

Natural Gas 

New York
2004 • 2005 Winter Energy Market Assessment

Speculative trading appears less siprice behavior than are supply and conditions

 Given its relative size and 

significance, speculative trading appears to be having an effect on short-ter

m prices:

• Volatility• Level -- perhaps

 Speculative trading (as measured 

by non-commercial futures positions) does not appear to be sufficient to have caused much of the recent price movement.

 Non-commercial positions are 

more balanced between long and short compared to the start of last winter.

Source: Derived from Co

m

mitment of

Trader’s repor

0

50

0

1,0

0

0

1,5

0

0

2,0

0

0

2,5

0

0

3,0

0

0

Sep-03

Nov-03

Jan-04

Mar-04

Open Interest (Millions of MMBtu's)

S

h

ort Non-C

o

m

m

ercial P

o

si
2004 • 2005 Winter Energy Market Assessment

Regional markets, especially the Ncould see price increases with sev

 Forward market shows potential 

congestion into the Northeast this winter.

 2004-5 winter demand is 

expected to increase .6 Bcf/d. 

 Infrastructure proved just 

adequate for extreme cold in New Englandlast year. 

 So far, 3 additional projects have 

been completed adding 0.5 Bcf/d to Northeast capacity. 

 Paying premium spot prices for

brief periods often costs less than adding year-round capacity.

Pipeline Capacity 

Conditions on J

Reflected a Variety 

Iroquois 

73

%

Texas Eastern

92

%

Tran

s

co 

94

%

NY ISO

Sources: O

MOI analysis of pipeline flow data, EIA 

U.S. Natural 

Gas Pipeline and 

Underground Storage Expansions in 2003, 

September 2004, FE

R

C

Northeast Energy Infrastructure

Conference Report, June 2004, and FER

C Office of Energy

Projects database, October 2004.
2004 • 2005 Winter Energy Market Assessment

Electricity prices are rising in respfuel cost increases

 Electricity prices are rising with 

fuel cost increases.

 Scarcity of gas is possible under

extreme weather conditions in New England and Texas because they rely heavily on gas forelectric generation.

 Reliability issues from gas 

scarcity may be lessened by operational and market changes made in reaction to last winter.

 Expansion of PJM and new 

market software in NYISO should enhance markets but is not yet proven in operations.

Sources: OMOI analysis of Platts’ data, reports fro

m ISO-NE, N

YISO, PJM, ERC

O

T,

NERC. Prices as of November 15.
2004 • 2005 Winter Energy Market Assessment

FERC’s

OMOI will continue to mon

drivers closely this winter

 Work with public utility commissions to help them prote

as prices flow from the wholesale to the retail markets 

 Monitor gas market activity including pipeline capacity 

regional prices

 Assess status and quality of and market reaction to na

storage data

 Monitor winter electric market behavior:

• Price effects• Market design • Reliability effects• Behavior

 Pay particular attention to unexplained price movemen

activity around extreme weather
2004 • 2005 Winter Energy Market Assessment 

Appendix A

Supply Adequacy
2004 • 2005 Winter Energy Market Assessment 

Natural gas prompt-month futures preflect supply concerns

N

a t u r a l G

a s P r o

m

p t - M

o

n t h F

u t u r e

s P r i ces H 

G

o i n

g i

n t o W i n t e r 20 04/

0

5

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

$10

9/2/2003

10/12/2003

11/21/2003

12/31/2003

2/9/2004

3/20/2004

4/29/2004

6/8/2004

7/18/2004

8/27/

Futures Settlement Price ($ per MMBtu)

F

u t u r e

s P r o m p t

M ont h S

e t t le m 

A

v

e r age P r ic e : S ept 03-

O

c t 03 

A

v

e r age P r ic e : N

o

v 03-

M

a r 04 

A

v

e r age P r ic e : S ept 04-

O

c t 04 

A

v

e r age P r ic e : N

o

v 1- 15 ( $7. 8

Source: O

MOI analysis derived from Platts Gas Daily.
2004 • 2005 Winter Energy Market Assessment 

Natural gas futures price average fwinter period, November through Mis 80% higher than last year

Winter F

utures average f

or 2003/04 en

d

s b

elo

w $5.00

Winter F

utures aver

Source: Derived from Bloomberg.Note: Winter average is the average Nove

mber through March settlement price.

$4$5$6$7$8$9

$10

4/1/2004

4/21/2004

5/11/2004

5/31/2004

6/20

Futures Settlement Average Nov04-Mar05 ($/MMBtu) $4$5$6$7$8$9 $10

4/1/2003

4/21/2003

5/11/2003

5/31/2003

6/20/2003

7/10/2003

7/30/2003

8/19/2003

9/8/2003

9/28/2003

10/18/2003

Futures Settlement Avg for Nov 03 - Mar 04 ($/MMBtu)
2004 • 2005 Winter Energy Market Assessment 

0.002.004.006.008.00

10.0012.0014.00

Jan-00

Apr-00

Jul-00

Oct-00

Jan-01

A01

Dollars per MMBtu

Futures markets indicate expectatirecent high coal and oil prices may this winter

COAL N

Y

M

E

X c

o

al futures prices indicate that current $60/ton s

pot prices f

or Central Appalachian coal may persist through the

winter. 

 High coal price e

xpectations attributable to fundamental factors such as: 

• D

e

pleted resources in eastern 

U.S. supply areas and shortages of lo

w

sulfur bituminous coal. 

• Reduced U.S. coal stockpiles - now appro

ximately 29% lower than the 

3-y

ear avera

ge.

• High alt

ernati

ve fuel prices (oil and g

as). 

• Increased demand for coal (2% gro

wth in U.S. electricity demand 

between 200

3 and 2004).

 Western coal is plentiful and prices are likely to rem

ain st

a

ble. 

OIL W

TI and heating oil futures for delivery in January an

d February

are trading

at historically hi

gh prices (in n

o

minal d

ollars). 

 N

YMEX 

W

TI prices have increased 52% since Janu

ary 2004 and now

appro

ximate $50/bbl throughout the winter. 

 F

actors influencing

e

xpectations for oil prices: 

• Likely tight sp

are capacity (

production, refining, and storage/transportation logistics). 

• Geopolitical uncertainty and fear of supply 

disruptions. 

• Liquids inventories near the bottom of 

5-year a

v

erage ranges. 

• Global oil demand in the 4th quarter of 2004 anticipated to be 2 million

barrels per day higher than in 2003. 

 Mitigating F

actors:

 In August 200

4, OPEC hit highest production levels since 2000. 

 About 1.5-2.0 million barrels per day of surge capacity still exists.  Slow down in Chinese oil demand in the 4th quarter due to conservation, price effects, and growth in non-oil powered generation.

Tight f

s

High o

dow

n

0

10203040506070

1/14/00

4/21/00

7/28/00

11/3/00

2/9/01

5/18/01

Dollars per Ton

 C

 C

Sources: Bloo

mberg, EIA and International Energy Agency.
2004 • 2005 Winter Energy Market Assessment 

Record natural gas storage levels ssome fundamental concerns for wi

 Upper and lower limits of storage capacity continue to  Shut-in production from Hurricane Ivan has cut about 

storage injections.

0

5 0 0

1 ,0 0 01 ,5 0 02 ,0 0 02 ,5 0 03 ,0 0 03 ,5 0 0

A p r M a y J u n J u l A u g S e p

O c t N o v D e c J a n 

5 - y e a r r a n g e 200 2 - 0 3 200 3 - 0 4 200 4 - 0 5

Source: EIA, Form EIA-912,

Weekly 

Underground Natural Gas Storage 

Report, data through week ending Nov

Associates, from NGI’s Daily Gas Price Index, October 26, 2004.
2004 • 2005 Winter Energy Market Assessment 

Gas rig counts are not translating iincreased production

 Many analysts are estimating a decline in domestic production 

(CERA estimates almost 5% and Lehman Brothers about 1.8%2004 production as essentially flat to 2003)

 Declining production and an expected 

decline in LNG imports this winterwill make overall supplies tight.

 Exports to Mexico are expected 

to increase about 0.2 Bcf/d to 1.1 Bcf/d in 2004 and to 1.3 Bcf/d in 2005.

 Canadian imports can no 

longer be counted on to fill the gap due to increased demand in eastern Canada and flat production.

Productio

n expecte

16.5

17

17.5

18

18.5

19

19.5

20

1990 1991 1992 1993 1994 1995 1996 199

Yearly Dry Gas Production (Tcf)

PE

Rig Co

Sources: EIA 

Short-Term Energy Outlook, October, 2004,

CERA, North A

merican Natural Gas Monthly Briefing

Industry

Update, October 13, 2004.
2004 • 2005 Winter Energy Market Assessment 

Monthly Index

10% Colder

Normal

10% Warm

er

$0.00$2.00$4.00$6.00$8.00

$10.00

Nov-02

Feb-03

May-03

Aug-03

Nov-03

Feb-04

May-04

Aug-04

Nov-04

Feb-05

($/MMBtu)

Ti

g

ht Su

p

plies Exaggerate Price

Response to Consumption Changes 

$0.00$2.00$4.00$6.00$8.00

$10.00

0

5 10 15

($/MMBtu)

When supplies are tight, changes in or production magnify price effects

 In a market w

supply l

osse

can mean la

 The easi

est 

supply and calready been 

 Natural gas 

increase due typical Midwgas expendi

• Normal w• 10% col

d

• 10% war

Sources: OMI derivation from CERA North American Natural Gas Watch: The 

Worst Is Yet to Co

me: Divergin

A

merican, Gas Market, GasDaily and the Energy Information Agency

October 2004 Short term Energy Outloo

Moderate Consu

mption 

Increase, ple

ntiful 

supplies

Moderate Consu

mption 

Increase, tight supplies

Large Price Chang

e

Henry Hub
2004 • 2005 Winter Energy Market Assessment 

 U.S. LNG import

s grew 38% or fro

m 0.36 Tcf to

0.50 Tcf through the 

3rd quarter of 2004 

compared to the same p

eriod in 2003. Winter

2004/2005 e

stimates of LNG import

s vary from

1.5 –

2.0 Bcf/d. 

 Risin

g LNG imports have moderate

d U.S.

natural gas price increases.

 Several factors could limit U.S. LNG terminal 

send-out this winter:

• Lack of spare global liqu

efaction capacity 

(especially that meets U.S. pipeline quality fuel specifications).

• Continued r

eliance on spot contracts for

LNG. 

• Reduced opportunities to divert cargoes 

to the U.S. b

ecause of n

ormal weather 

(or worse) in Asia and Europe.

• Inadequate economic incentives to divert

LNG spot cargoes to U.S. terminals because of sustained, high crude oilprices.

 Increases in global liquefaction capability 

underway, b

ut unlikely to materially i

mprove 

LNG supplies available t

o the U.S. this winter.

Total U.S. LNG import

since 2002, b

ut sp

Contracting practices and infrastruavailability may constrain LNG wintdeliveries 

EIA LNG Capacity Estimat

Base-load send-out 2.7 Bcf

Peak-day send-out: 3.7 Bc

Source: Lippman Consulting Inc., Short-Term Energy Outlook, EIA, “Monthly Gas Briefin

g: Enough 

Not Support Futures, CERA, October 19, 2004, “U.S. LNG Markets and Uses,” EIA, June 2004, Q3

Lehman Brothers., November 8, 2004. 
2004 • 2005 Winter Energy Market Assessment 

Appendix B

Status of Trading
2004 • 2005 Winter Energy Market Assessment 

Trading market liquidity and depth Peak demand in New England last ya lack of buyer options with limited 

 When demand exceeds limited gas supplies, spot prices increase

competing for supply, often to avoid imbalance penalties and theshaving inventory. 

 In New England last winter, under peak demand conditions, a lar

offers were made, but trades only occurred at the upper end of th

 These conditions are typical of a functioning market during scarc

-4

0 -2

0

0

2

0

4

0

12/112/812/1512/2212/291/51/12

bids t

a

k

e

n

bid

s n

ot ta

k

e

n

offers ta

k

e

n

offers n

ot t

a

k

e

n

On J

a

nuary 1

4, Algonquin City Gate tra

ding on ICE s

aw 

fe

w off

ers, all succe

s

sful, no matt

er the price.

(Li

1/14/2004

Algonquin 

Source: O

M

OI analysis 
2004 • 2005 Winter Energy Market Assessment 

Natural gas physical and futures tradisplay volatility approaching this wcoinciding with higher prices & wid

rosesharplyin

October

0

5,000

10,00015,00020,00025,00030,000

Sep-03

Oct-03

Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-0

To

4

tal Monthly Henry Hub Next-Day Physical Volume (000's MMBtu's)

0

5,000,000

10,000,00015,000,00020,000,00025,000,00030,000,000

Nov

Dec

Jan

F

Total Monthly Futures Volume (000's MMBtu's)

20022003

ICE Henry Hub p

h

ysical next-day t

otal VOLUME 

per month rose sharpl

y i

n October 

F

utures V

summ

er/early 

Note: Volume is sell-side only Source: Derived from ICE, www.theice.com.

Source: D
2004 • 2005 Winter Energy Market Assessment 

While prices are higher, the commenon-commercial sectors have diffepositions compared to last winter

0

500

1 ,0001 ,5002 ,0002 ,5003 ,000

9/2/2003

11/11/2003

1/20/2004

3/30/2004

6/8/2004

8/17/2004

Open Interest (Millions of MMBtu's))

N

o

n - C

o

m

m

e r c ia l P

o

s itio n

s - L o n g 

N

o

n - C

o

m

m

e r c ia l P

o

s itio n

s -S h o rt C

o

m

m

e r c ia l P

o

s itio

n

s -L

o

n

g

C

o

m

m

e r c ia l P

o

s itio

n

s -S

h

o r t

N

Y

M

E

X S

e ttl

e

m

e

n t P ric

e

1 0 /28/03:7 8

% S h o r t

2 2 % Long

154

Source: Derived from Co

m

mitment of Traders Report, www.CF

TC.gov.
2004 • 2005 Winter Energy Market Assessment 

In addition to wide price ranges, phand futures volumes have also beevolatile

 The higher volume likely reflects existing market participan

trading more actively due to the price levels and volatility.

 New participants include hedge funds, replacing some of th

merchant energy companies. 

 Not all of the activity growth this fall can be attributed to he

many were previously in t

he market.

 On ICE, the average number of counterparties for next-day 

• 11/03 to 3/04: 29 • 9/04 -10/04: 31

 On NYMEX, the number of companies with reportable ope

• October 28, 2003: 193 • October 26, 2004: 202• For the past year, the maximum number was 225, which occurred i

Sources: Derived from ICE, www.theice.com and N

YME

X, www.NYMEX.com.
2004 • 2005 Winter Energy Market Assessment 

Greater number of clearing and tradproducts seen in 2004

 Assisting in credit risk mitigation this winter is the growth in vol

clearing products on NYMEX and Intercontinental Exchange (ICVolume Growth:

 From the start of clearing on ICE through September 2004, ICE cleared 

of electricity and 42 quadrillion Btu’s of natural gas.

 From the start of clearing on NYMEX through September 15, 2004, NYM

megawatt-hours of electricity and 31 quadrillion Btu’s of natural gas.

Product Growth in 2004: ICE began clearing financially settled electricity trades via the London C

locations: PJM, NYISO, NEPool, Cinergy, Palo Verde, Mid-C

olumbia, S

 N

Y

M

E

X introduced the following natural gas and electricity products via 

cleared-only natural gas options, monthly natural gas index futures cont

futures contracts, penultimate natural gas swap futures contract, Dow Jfutures contracts, and ISO New England internal H

ub peak LMP swap f

Sources: www.theice.com “Intercontinental Exchange sets new records in September,” 10/04/04, www.nym“Exchange sets record for clearing off-exchange transactions,” 9/15/04, and various NY

MEX press releases.
2004 • 2005 Winter Energy Market Assessment 

Appendix C

Infrastructure
2004 • 2005 Winter Energy Market Assessment 

Increased gas demand for power getest the infrastructure during severe 

 During January 12-16, 2004 cold weather, 

Northeast pipelines were at high utilization and operated under reduced tolerances. 

 Estimates are that Northeast winter gas

consumption fell from 12.7 Bcf/d in 2002-03 to 11.4 Bcf/d during winter 2003-04, about 10 percent. 2004-5 winter demand is expected to reach 12.0 Bcf/d, an increase of 5 percent over the previous winter. 

 Total U.S. 2004-05 winter gas demand is 

expected to rise about 2.7 Bcf/d or 0.6 percent from the winter of 2003-04.

 Gas-fired generation capacity in the 

Northeast increased 17 percent from January 2003 to October 2004.

J

an. 2003

NEPOOL 10,31NYIS

O 13,16

0 

Total NPCC 23,47

Northea

0.02.04.06.08.0

10.012.014.016.0

Nov Dec 

Bcf per Day

2002-03Ave 12.7 Bcf/d

Gas-Fired 

Sources: FE

R

C

Staff report on January 2004 Price Run-up; CE

R

A

Eastern North A

merica Energy Monthly Briefin

g

Natural Gas Monthly 

Briefing, October 18, 2004; Platts PowerDat, October 2004.
2004 • 2005 Winter Energy Market Assessment 

Infrastructure capacity additions esdecrease in 2004 as three projects hold

Sources: EIA 

U.S. Natural Gas Pipeline and 

Underground Storage Expansions in 2003, September 2004; FE

R

C

Conference Report, June 2004; and FER

C Office of Energy Projects database, October 2004.

TETCO Mid-Atlanti

c

Expansio

n

Proposed L

N

G Terminal

(2) 

 In September, EIA estimated 8 

projects would be placed into ser

vice 

with a capacity of 0.9 Bcf/d. (Five are appr

oved or under construction: 

Eastern Shore Expansion, Algonquin System Upgrade, Columbia Delaware Valley Expansion , and 2 Iroquois Gas Transmission projects.)

 The remaining three: Islander East 

(0.25 Bcf/d), a Connecticut expansion of Algonquin (0.28 Bcf/d)dependent on Islander East, and Millennium (0.7 Bcf/d) delayed.

 At this point, 3 projects have been 

completed in 2004 adding 0.5 Bcf/d to Northeast capacity. 
2004 • 2005 Winter Energy Market Assessment 

Financial markets anticipate transpbottlenecks in the Northeast and mcongestion elsewhere

B

a

sis Differe

ntial Min

u

s T

ariff R

ate

-$2.00-$1.00

$0.00$1.00$2.00$3.00

($De

c

J

a

n

F

e

b

/MMBtu)

Do

minion

Colu

mbia G

a

s Appalachi

a Tet

Tra

nsco Z

6 Mi

c

h

Co

n Ro

San Juan t

o S

o

Cal

Forward basis anticipates congestion at Tetco M-3 (

MidAtlantic) a

(New York City) compared to minimal constraints in the Midwest ais typical of the Northeast. Cold weather could cause restricted pip

Ba

sis V

alu

e Relativ

e to Stora

g

e

Upstream

20

% Do

w nstream

80

%

The maj

ority of bas

downstream of ma

Sources: O

MI derivation from NY

MEX

Clearport settlements as of 11/05/04 and pipeline informational postin
2004 • 2005 Winter Energy Market Assessment 

Economics of high prices for brief pversus investment in infrastructure to favor brief high prices

Sources: O

MOI analysis of GasDaily data for Tennessee Zone 6 and representative tariff rates; fuel costs exclud

$0.00

$10.00$20.00$30.00$40.00$50.00

1/14/2004 1/15/2004 1/16/2004

($/MMBtu)

$0.

0

0

$20.

0

0

$40.

0

0

$60.

0

0

$80.

0

0

S

pot G

a

s

Pipelin

e

Ca

p

a

city

Storage

($/MMBtu)

 Paying premium spot 

often costs less than y

 For instance, during la

in New England, very differentials occurred 16. Assuming spot gathe three days, the adbeen approximately:

• $24/MMBtu relative 

• Reservi

ng annual pi

cost more than $70/

• Reserving storage a

capacity would have 

 The economics of new 

growth continue to be 

Ne

w England Basis Differential to Henry Hub

Comparison to Unit Costs
2004 • 2005 Winter Energy Market Assessment 

Appendix D

Electric M

arkets
2004 • 2005 Winter Energy Market Assessment 

Last winter, severe weather caused outages and fuel scarcity in New E

$0

$200$400$600$800

$1,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 

JANUARY 14 

Jao f 

R ealt imehourly LM Pp rice 

Weather Conditions 

T

- 25- 20- 15- 10

- 5

 0 5

 10

 BOSTON

 

BRIDGEPORT

BURLINGTON 

 Temperature (F)

Tem

 Record cold in New England and Eastern Canada 

last January included average daily temperatures of 0 F° with a minus 15 F° wind-chill.

 Record heating demand for gas coincided with 

record electricity demand. 

 50% of New England generating capacity is 

gas-only or gas-dual fueled.

 Large number of generator outages:

• Fuel and weather-related outages accounted for 

4,399 of 8,927 MW of outages.

• Cold weather-related equipment failures accounted 

for 1,181 MW, or 21% of mechanical outages.

• Of the fuel related outages of 3,181 MW, an 

estimated 48% sold firm gas in the spot m

arket. 

• At the peak on January 14th 47% of available 

gas-fired generation ran (6,291 of 13,364 MW).

• MW associated with gas sal

es represent 17% of 

outages (1,515 MW of 8,927MW).

 Electricity prices increased on tight supply/demand 

conditions.

Sources: O

MOI analysis of Platts and IS

O-NE data.
2004 • 2005 Winter Energy Market Assessment 

Could weather and fuel outages hit New England or other areas this wi

Sources: ISO-NE, E

R

C

O

T and OMOI staff . 

 New England is at greatest risk for weather rela

and fuel scarcity:

• Heavily reliant on gas-fired generation • At the end of gas supply lines from the G

ulf of Mexico

• Regional cold can reduce supplies from Canada • Has less dual-fueled capacity than New York• Has significant winter load

 ERCOT also depends heavily on gas-fired capa
2004 • 2005 Winter Energy Market Assessment 

New procedures will reduce the risproblems in New England and else

 New England

• During cold snaps ISO-NE will alter bidding schedules so gene

commitment before gas trading and pipeline scheduling deadli

• ISO-NE and states clarified emissions rules and made them m• Increased power imports from operational and equipment impr

• Restrictions on economic outages during cold snaps.

• Unit commitment and forecasting processes now consider fuel 

• Generator improvements to reduce cold-weather forced outage

 New York

• NYISO will monitor pipeli

ne and distribution restrictions (OFOs

• N

YISO’s new real-time market system has improved bidding, d

(but start-up in December could encounter shake-out problems

 Texas

• ERCOT attempting an inventory of dual-fuel capability (but is e

about proprietary information).

Sources: ISO-NE Manage

ment Report, O

M

OI staff discussions with N

YISO and ER

C

OT 
2004 • 2005 Winter Energy Market Assessment 

Fuel prices will push up the cost of wholesale electricity

 All primary fossil fuels--natural gas, 

coal, and oil--will cost more this winter.

 Forward contracts for this winter

are higher than last winter’s actual prices (chart).

 Nuclear generation has little spare 

capacity and cannot cushion prices.

 Gas and oil may take tur

ns setting 

prices in the Northeast and Florida.

 Effects vary with regional fuel mix:

0 20 40 60 

Mass Hub

Zone A

Zone J

PJM West

Cinergy

ER

C

OT

Mid-C

SP 15

Sources: OMOI analysis of Platts’ data, reports fro

m ISO-N

• New England and 

ERCOT most

sensiti

ve to gas.

• New York sensitive 

to gas and oil.

• PJM and MISO 

sensitive to coal.
2004 • 2005 Winter Energy Market Assessment 

Winter issues in California

Upgrades and construction should not effect service this 

• Pacific DC Intertie work scheduled to be completed in Dece

to full 3,100 MW capacity. Substation upgrades will make th

Southern Califor

nia and the Pacific Northwest more robust.

• Miguel transfor

mer bank work will provide San Diego with g

California markets need to take action this winter to avo

market imbalances in the Summer of 2005.

• The supply-demand balance in southern California was tigh

hours of summer 2004.

• CAISO and CEC warned of possible fir

m load interruptions 

are generator retirements, together with high heat-driven loa

• In October 2004, SCE and PG&E issued RFOs for call optio

starting in April 2005.

Sources: CALIS

O, CEC, OMOI staff analysis.
2004 • 2005 Winter Energy Market Assessment 

RTOs expand, MISO and PJM work coordination issues

 PJM’s inclusion of ComEd, AEP and Dayton expand

and transmission system to areas served by differenThis increased complexity is offset somewhat by incrdiversity of fuel supply.

 MISO expands to include Illinois Power and prepares 

operations in March of 2005.

 Operations on one side of the PJM-MISO border affe

on the other side. The two RTOs will operate this wilevel--the market-to-non-market level--of the Joint OpAgreement. 

Sources: PJM, 

O

M

OI staff analysis.
2004 • 2005 Winter Energy Market Assessment 

Contributors

 Stacy Angel Robert Flanders  Judy Eastwood Kenneth Kohut Stephen Harvey  Alan Haymes Rafael Martinez Steven Michaels

 Gary Mahrenholz Kara Mucha Christopher Peterson Thomas Pinkston Clint Ramdath Julia Tuzun Manali

Shah

 Dean Wight

Disclaimer: This Report contains analyses, presentations and concl

based on or derived from the data sources cited, but do not necessa

or recommendations of the data providers.