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Summer assessments: higher gas and electricity prices, possible problems in Texas, California

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After plummeting in 2012, natural gas (and electricity) prices look to rebound to 2011 levels this summer, the Federal Energy Regulatory Commission said in its Summer 2013 Energy Market and Reliability Assessment. Electricity supplies are expected to be adequate in most of the country, but the Electric Reliability Council of Texas (ERCOT) is looking at low reserve margins and the San Diego-Orange County area in Southern California could see price spikes, FERC staff said at the commission’s May 16 meeting.

The North American Electric Reliability Corp. also singled out Texas and the San Diego-Orange County area as potential problem spots in its summer assessment.

Forward natural gas prices for the summer are above $4/MMBtu at all major trading hubs, compared with less than $2.50/MMBtu in 2012, staff said. Adjusting for the relative efficiency of coal versus and natural gas, current natural gas prices are 78 cents/MMBtu higher than Central Appalachian coal prices, the largest separation seen since July 2010, FERC staff said. The higher natural gas prices "should predominately favor dispatch of coal over natural gas."

In Texas, ERCOT is forecasting a reserve margin of 12.9%, compared with a target of 13.75%. A combination of extreme heat and extreme outages could cause problems, staff said.

In San Diego-Orange County, the major problem is the continued outage of the San Onofre nuclear plant. Other factors that could put upward pressure on prices there are higher natural gas prices, low hydro production, transmission constraints, hot weather and California’s cap-and-trade system, FERC staff said. Unusual heat or unexpected outages "could result in localized controlled load shedding to maintain system integrity," NERC said in its assessment.

Outages and retirements due to federal environmental regulations are not expected to cause any crises this summer, NERC said. "The impacts of recent retirements of fossil-fired generation are reflected in this assessment, and environmental control retrofits are not expected to impact generator outages for the summer peak," NERC said. "The planned outages associated with plant retrofitting are more likely to cause some constraints during the shoulder months (usually during the spring and fall) when generators typically perform preventative maintenance." —ROBERT VARELA


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