Summer Electricity Prices in Eastern U.S. to Rise: Outlook

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Tue, 29 May 2001, 11:05am EDT

Summer Electricity Prices in Eastern U.S. to Rise: Outlook By Bradley Keoun

New York, May 26 (Bloomberg) -- Wholesale electricity prices in much of the U.S. may surge this summer because of hot weather and higher natural gas costs, though they'll be well below California's soaring rates, analysts said.

While chronic power shortages and blackouts sent prices up eightfold in California over last year, prices east of the Rocky Mountains may rise 25 percent to 100 percent, analysts said. Most of that gain is based on expectations for higher air conditioner use after last year's cooler-than-normal summer.

``There's a big difference between our expectations for the East compared to the West,'' said Douglas Logan, an electricity analyst at RDI Consulting in Boulder, Colorado. ``High prices in the East will be relatively short, and they'll only occur when hot weather, transmission outages and generation outages happen together.''

Wholesale markets supply only a portion of a utility's electricity supply. The rest comes from power they produce at their own plants and supplies they buy under long-term contracts.

Higher wholesale prices may mean higher bills for homeowners and businesses in states that allow utilities to pass along costs, such as New York, Indiana and Georgia.

California prices are expected to skyrocket this summer as reduced hydropower imports from the Pacific Northwest leave the state short of electricity, resulting in blackouts on more than 30 days, according to President George Bush's National Energy Policy Report released earlier this month.

Topping Bush's Forecast

Power plants with 24,200 megawatts of generating capacity were built in 2000 -- more than the 21,400 megawatts added in the previous five years, according to U.S. Energy Department estimates. At last year's pace, the Bush Administration's goal of adding 393,000 megawatts of capacity in 20 years would be reached in 16 years. About 98 percent of the new capacity was added east of the Rockies.

``In California, you're going to have extended periods where you have supply disruptions almost every day, whereas in the rest of the country, they'll remain very, very unusual,'' said Kemm Farney, vice of electric power at Wefa Energy Group, a consulting firm in Philadelphia.

So far this year, peak power prices in California have averaged $293 per megawatt-hour, or almost seven times higher, on average, than at the PJM Interconnection LLC transmission grid in Pennsylvania, New Jersey and Maryland.

Most meteorologists expect temperatures in the Midwest and Northeast to be close to normal, which would increase demand for power to drive air conditioners over levels a year ago, when the summer was unusually cool. In Washington, D.C. for example, the summer of 2000 was the coolest since 1972.

Prices for natural gas, burned in power plants that produce about 15 percent of the nation's electricity, may rise this summer as a bevy of new power plants start up.

Gas prices rose 18 percent from June 1 through Aug. 31 last year, as the new power plants -- almost all of them gas-fired -- started up. Another 25,000 megawatts are slated to come on line this summer.

Summer Prices

Although natural gas is now 6.2 percent below year-ago levels, ``I still expect gas prices this summer to be higher than last summer,'' Logan said.

Eastern electricity prices will be highest in New York City, where state officials have been rushing to build six small power plants they said were necessary to avert summer blackouts, analysts said. The city also suffers from bottlenecks on transmission lines that bring power from elsewhere in the region.

Peak power prices in New York City may average $84 a megawatt- hour from June through August, up about 5 percent from last summer, said Kristin Dall, a gas and power analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. Prices for all of New York State will average $52.70, up 28 percent from year-ago levels, she said.

Some parts of the country may actually see lower prices. In Texas, which consumes a 10th of the nation's electricity, temperatures are expected to be above normal, according to the National Weather Service's long-range forecast last week.

Texas Prices

Still, prices in Texas, the nation's top electricity consumer, may be a third lower than a year ago because power plants built in recent years have created a surplus of electricity, Logan said. The state's generating capacity rose by 4.9 percent last year, above the national average of 3.5 percent, according to Energy Department figures.

In the Midwest, electricity supplies this summer will be much more abundant than in 1999, DRI-Wefa's Farney said. That year, a heat wave caused prices on Cinergy Corp.'s transmission grid in Ohio to soar above $9,000 a megawatt-hour.

Utilities and independent generators in the East Central Area Reliability Council, which covers Indiana, Michigan, Ohio, Kentucky and West Virginia, have added 3,130 megawatts of capacity in the past two years, or enough to light more than 3 million homes, according to U.S. Energy Department figures.

``The project developers have begun very aggressively pursuing these opportunities, compared to the period of 1987 to 1998, when no one built anything and no one would consider building anything,'' Farney said. Even so, ``last summer was a cool summer, so if we get a normal warm summer this year, we're going to have a lot more air-conditioning load.''

Peak prices on the Cinergy grid may average $70 a megawatt- hour from June through August, up about 75 percent from last summer, Logan said.

http://www.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=ad_right1_topfin&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOw.VrhSqU3VtbWVy

-- Martin Thompson (mthom1927@aol.com), May 29, 2001


Moderation questions? read the FAQ