2003 Summer Energy Market Assessment Staff Report by the: Office of - - PowerPoint PPT Presentation

1 Office of Market Oversight and Investigations

Staff Report by the:

Office of Market Oversight and Investigations (OMOI)

2003 Summer Energy Market Assessment

Federal Energy Regulatory Commission

2 Office of Market Oversight and Investigations

As we head into the heat of summer 2003

Market participants have taken steps toward transparent market designs

and trading platforms, as open and competitive energy markets evolve.

New power plant investments now provide higher reserve margins

across much of the country.

Market participants are addressing concerns about the quality of natural

gas price reporting.

Energy markets are rebounding from a period characterized by adverse

financial conditions.

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Nonetheless, there are challenges for energy markets this summer

A tight supply-demand balance in natural gas markets is raising natural

gas and electricity prices.

Demand response, an effective tool for dampening price spikes, is

missing from electricity markets.

Financial conditions have reduced the number of companies active in

energy markets, consequently limiting market liquidity and effectiveness.

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Futures market participants expect natural gas prices to remain above those of 1990s

Source: Historical data are Nymex settlement prices from GASdat. Futures prices are Nymex settlement prices on May 29, 2003.

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Natural gas-fired generation frequently sets the regional wholesale electric price

Note: Percent of time natural gas or oil is projected to be on the margin in 2003. Source: Cambridge Energy Research Associates (CERA), April 30, 2003.

.

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Throughout the country, natural gas prices have doubled since last summer

Note: Prices shown are the monthly average actual mid-point prices. June 2003 numbers include data through June 18 only. Price points selected are representative points for the regions of the United States analyzed in the 2003 Summer Energy Market Assessment. Source: Gas Daily.

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Depending on the role of natural gas in the region, some regions’ electricity prices have increased

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June 2002 June 2003 Note: Prices shown are the average actual on-peak day-ahead load- weighted prices. June 2003 numbers include data through June 18 only. Price points selected are representative points for the regions

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2003 Summer Energy Market

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To address high natural gas prices market participants are taking action

Commission Actions

Expediting new certificates for pipeline

capacity, including out of the Rockies

Enhanced Certificate Streamlining

Initiative

Revised LNG terminal policy Regional Infrastructure Conferences

Industry Actions

More drilling is occurring in response to prices. Industry is seeking access to new supply

sources.

Competitive pressures could displace some

inefficient natural gas-fired generators with new, efficient natural gas-fired units.

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Small reductions in demand can lower spot market electricity prices significantly for all customers

Source: Confidential bid data and illustrative demand curves.

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Demand response has many benefits for customers

Demand response in electricity markets:

• reduces peak prices
• moderates price volatility
• reduces peak loads, reduces congestion and improves local

reliability

• reduces supplier market power
• moderates long-term price levels by lowering spot market prices

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Demand response will play a limited role this summer

Demand response participation identified in organized electricity

markets was low in 2002.

• 0% in CAISO
• 0% in ISO-NE
• 3% in NYISO
• 3% in PJM

Outside organized markets, reliable demand response data are not

available.

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To address the lack of demand response market participants are taking action

Industry Actions

Some regions are promoting demand

response aggressively to help meet reliability needs this summer, such as in New York and Connecticut.

ISO-NE revised its tariff to provide more

price certainty to customers.

NYISO has tied activation of demand

response to prices in the spot market.

States are working to implement new demand

response tariffs or improve existing ones, such as in California and Florida.

Commission Actions

• FERC has proposed market design rules

that allow demand resources to participate

• n an equal footing with supply resources in

wholesale markets.

• FERC requires market monitors to report on

demand response in annual reports and monitors electric markets to ensure that demand resources are treated fairly.

• FERC has approved revisions to demand

response tariffs in ISO-NE, NYISO and PJM.

• FERC is creating standard interconnection

rules for small generation.

• Along with DOE, the Commission is

conducting analysis of distributed generation and its effect on electricity market prices and reliability.

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Financial conditions have dampened energy market liquidity

• Current financial conditions have forced market participants to exit

trading, reducing the liquidity of physical and financial energy markets and, consequently, their effectiveness.

• Longer-term implications of the lack of liquidity include reductions

in available capital for infrastructure investments and storage injection.

• Current financial conditions highlight the need to ensure that the

conditions of nonregulated affiliates do not harm regulated utility customers.

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To address financial conditions, market participants are taking action

Commission Actions

• Enhanced oversight of corporate financial

management to protect regulated

• customers. For example, review of

Section 203 and 204 policies and adoption

• f an interim rule for “Regulation of Cash

Management Practices”

• Proposed additional quarterly financial

reporting

• Continued oversight of credit standards for

pipelines and electric transmission owners

• Work to implement the wholesale market

platform

• Continuing work to bring closure to

western market issues, providing regulatory certainty to market participants

Industry Actions

• Restructuring to improve financial conditions

and remain competitive in the longer-term

• Using innovative techniques to increase

effectiveness, such as credit clearing

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Further information on OMOI’s 2003 Summer Energy Market Assessment

This presentation will be available following the meeting on

www.ferc.gov.

The complete 2003 Summer Energy Market Assessment, including

Regional Assessments, will be available in the next several weeks from www.ferc.gov.

Please contact Lisa Carter (Lisa.Carter@ferc.gov) or Jolanka Fisher

(Jolanka.Fisher@ferc.gov) with any questions.