Dulles, Va., May 18, 2012 — Low natural gas prices are expected to continue to exert downward pressure on electricity prices this summer, although there could potentially be more volatility in Southern California, Texas and Boston, where power generation capacity reserves are tighter, according to the Federal Energy Regulatory Commission's (FERC) summer assessment.
The natural gas surplus and sub-$2-$2.50/MMBtu prices are expected to step up the switching of generation facilities from coal-fired to gas-fired, according to FERC's "Summer 2012 Energy Market and Reliability Assessment" report, which was presented Thursday at FERC's regular meeting, Natural Gas Intelligence reported.
The reserves of power generation capacity to meet normal electricity demand this summer appear adequate, but there are three potential trouble spots — Southern California, Texas and Boston, the commission staff report said. Summer outages could cause price volatility in these power markets, but in general the market will be dominated by low natural gas prices.
"The most prominent market driver for energy markets this summer will be the cost of natural gas, which has fallen to prices last seen a decade ago... Gas prices at the recent lower level can be expected to have a significant impact on electric markets." FERC expects the gas surplus condition to continue through the summer, causing gas prices to stay near their present levels.
In addition to the low prices, "the ability of the natural gas-fired plants to obtain sufficient fuel does not appear to be a significant factor or a market concern during the upcoming summer. In particular, capacity in long-haul pipelines is generally sufficient to avoid disruptions in the use of natural gas for electric generation for this summer," FERC noted.
Pointing to the possible problems this summer, FERC staff said that twin units of Southern California Edison Co.'s 2,200 MW San Onofre Nuclear Generating Station (SONGS) in San Clemente, CA, which have been shut down for three months, warrant close attention if they should remain offline during high-load periods this summer.
The situation in Texas may be strained if the state experiences another hot summer like last year, according to the FERC report. The Electric Reliability Council of Texas (ERCOT) projects that load could exceed projected capacity (70 GW) during an extreme heat wave with higher-than-normal forced general outages.
If weather conditions are normal, "New England's electric power supplies are expected to be adequate this summer. However reduced and uncertain supplies of liquefied natural gas to fuel [Exelon Power's Mystic Generation Station in Charlestown, MA] could result in an inadequate supply to the Greater Boston area during extremely high-loading periods and multiple contingency conditions," the report said.
"ISO New England is reaching out and working with asset owners in North East Massachusetts and the Boston area to alert them to the situation and is working with local generation and transmission companies to develop special operating plans that can be used to manage a shortage situation."