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A-3: Staff Presentation:

Slide 1

 

“Good Morning, Mr. Chairman and Commissioners. 

“The Office of Enforcement’s Division of Energy Market Oversight is pleased to present a 

summary of the 2017 State of the Markets report. This report is staff’s assessment of natural 

gas, electric, and other energy markets developments during the past year. The complete 

report will be posted on the Commission’s website, www.ferc.gov.
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Slide 2

“Today we present highlights from the report starting with the 2017 natural gas markets. 

“In 2017, average U.S. natural gas spot prices rose 21% from 2016. However, prices at the 

Henry Hub remain 7% below the average of the previous 5 years and 33% below the average of 

the previous 10 years. Cold weather and high winter heating load at both the beginning and 

the end of 2017 contributed to a 28% price increase in the East. Natural gas prices in the 

Marcellus Shale region rose 19% as new pipeline capacity allowed producers in the region to 

meet a larger share of demand in previously inaccessible market areas. In addition, pipeline 

and storage limitations in southern California continued to constrain the Los Angeles market 

area, where average prices rose 18%. Although, natural gas spot prices across the U.S. were 

higher in 2017, they remained relatively low compared to higher spot prices generally seen 

before 2015.

“Regarding natural gas infrastructure, nearly 12 Billion Cubic Feet per day (Bcfd) and 773 miles 

of Commission-jurisdictional natural gas pipeline capacity entered service in 2017. Many of the 

new projects connect Marcellus and Utica shale natural gas fields to markets in the Midwest 

and Northeast regions. However, only 20 miles of new pipeline and 0.3 Bcfd of capacity was 

built in New England. Several other new pipeline projects supply Liquefied Natural Gas (LNG) 

export locations. Additionally, new U.S./Mexico border-crossing pipelines in Texas also added 

export capacity.

“U.S. natural gas production rose 1%. Production remained mostly flat in the first half of the 

year; however, natural gas production strongly rebounded in the second half of the year. 

Improvements in drilling efficiencies allowed producers to expand operations, even as prices at 

major producing regions remained stable. New pipeline capacity out of the Marcellus and Utica 

shale plays allowed producers to meet demand in previously inaccessible markets. These shale 

plays demonstrated the largest U.S. natural gas production growth in 2017, with a 2.18 Bcfd 
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increase over 2016. Natural gas production from the Permian Basin of west Texas rose 1.38 

Bcfd.

“Total U.S. natural gas demand was down slightly from 2016 demand levels. Natural gas used 

for power generation fell 6% as Cooling Degree Days in 2017 fell 3.5%, requiring less power 

generation for cooling load. The largest increase in demand for natural gas came from LNG 

exports, which more than tripled from 2016. Meanwhile, industrial natural gas demand rose 

1% while residential/commercial natural gas demand remained flat.
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Slide 3

“The U.S. became a net exporter of natural gas for the first time since 1958, as increasing 

shipments of LNG to world markets and natural gas pipeline deliveries to Mexico exceeded 

imports from Canada and other countries. 

“Regionally, southern California next-day natural gas prices measured at the SoCal Citygate 

remained within their five-year range for most of 2017. However, storage limitations at Aliso 

Canyon combined with pipeline issues along the SoCalGas system and colder than normal 

weather led prices to increase late in the year. The SoCal Citygate price set an all-time record 

of $11.83/MMBtu on October 24. 

“In the Mid-Atlantic and northeast, cold temperatures in late December 2017 and early January 

2018 led to the largest storage withdrawal in history of 359 Bcf for the week ending on January 

5, 2018. It surpassed the previous 2014 record withdrawal by nearly 25%. Large winter 

withdrawals helped push storage inventories to 1.35 Trillion Cubic Feet, the lowest end-ofwinter storage figure since 2014. 

“My colleague Alex will now present U.S. power market highlights from 2017.
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Slide 4

“Continuing from where Eric left off, during the winter “cold snap” beginning on December 26, 

2017, and ending on January 7, 2018, PJM, NYISO, and ISO New England experienced peak loads 

near but not above their respective all-time winter high levels. In NYISO and ISO New England, 

record high natural gas prices enhanced the competitiveness of oil-fired generation. Natural gas 

prices in New York City, New England, and the Mid-Atlantic all set all-time record highs, with 

next-day trades reaching as high as $175/MMBtu in New York City on January 4. 

“In 2017, average day-ahead on-peak locational marginal prices (LMPs) increased between 3 

and 13 percent at the pricing nodes throughout the RTOs and ISOs. RTO/ISO and non-RTO/ISO 

trading hubs also experienced power price increases comparable to the nodal LMP increases, 

with the exception of PJM’s Western hub, whose average day-ahead on-peak LMP was the 

lowest it has been since 2010. Despite these year-over-year price increases, power prices at 

the eastern trading hubs remained near their lowest average levels since 2010.

“In the summer, several heat events led to high power loads, which topped resource adequacy 

requirements and almost set a new demand record in the California ISO (CAISO). In addition to 

tight supply and demand conditions, growing renewable generation added to forecasting, 

supply, and demand uncertainty. Power prices rose modestly late in the year, as the natural 

gas issues discussed earlier elevated natural gas prices. Together, these conditions led to price 

spikes in the day-ahead and real-time markets in CAISO.
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Slide 5

“In its price formation initiatives, the Commission, in Order No. 831, found that the ability of 

resources to exceed existing offer caps is required to promote efficiency in pricing and to 

provide an incentive to resources to offer their capacity when most needed. Order No. 831 

placed a requirement on all RTOs and ISOs to file tariff provisions allowing offers above 

$1,000/MWh when based on verified costs. The tariff provisions to meet the requirements of 

Order No. 831 have been accepted for ISO New England, SPP, PJM, and New York ISO. This is 

one of several price formation initiatives that the Commission has undertaken over the last 

several years.

“In 2017, electric storage capacity continued to grow across the Commission-jurisdictional RTOs 

and ISOs, as well as other regions. Battery storage capacity has seen the most rapid growth in 

recent years. Recognizing the technical capabilities of electric storage resources to participate 

in the capacity, energy, and ancillary service markets, the Commission issued Order No. 841 in 

February 2018, which requires the RTOs and ISOs to remove barriers to the participation of 

electric storage resources in their markets by creating a participation model, or a set of market 

rules, that acknowledges the physical and operational characteristics of electric storage 

resources

“Regarding infrastructure projects, over 680 miles of new transmission lines were added across 

the country in 2017, mostly in MISO and PJM. In addition to the transmission lines completed 

in 2017, several ISOs approved transmission projects using Order No. 1000 Commissionapproved competitive bidding processes. MISO’s Board of Directors approved a transmission 

plan that included The West of the Atchafalaya Basin (or WOTAB) project, a 500-kV project in 

Entergy’s service territory in western Louisiana and eastern Texas. Similarly, NYISO’s Board of 

Directors approved a transmission project submitted by NextEra Energy to address congestion 

and deliverability constraints in the West Zone. This was the first transmission project in NYISO 

selected using their Order No. 1000 competitive bidding process.
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“Finally, Portland General Electric Company joined the Western Energy Imbalance Market (EIM) 

in October 2017. Earlier this month, Idaho Power Company and Powerex joined the EIM. 

Seattle City Light, Salt River Project, and the Sacramento Municipal Utilities District, and the Los 

Angeles Department of Water and Power will likely join by 2020. 

“Thank you. This concludes staff’s summary of the 2017 State of the Markets report. We 

would be happy to answer any questions you may have on the topics it covers.”