Energy Market Update

By The Numbers:

• NG '22 prompt-month NYMEX closed at $8.74, up $.66/MMbtu on Monday, May 23.
• WTI '22 prompt-month crude oil closed at $110.29/bbl, up $.01/bbl on Monday, May 23.
• Coal spot contracts (Central Appalachia) traded at $125.80/ton on May 20, unchanged from the previous week, the EIA reported.

• The Energy Information Administration (EIA) reported an injection of 89 Bcf into underground storage for the week ending May 13. Inventories are 1,732 Bcf, which is 17% less than the same period last year and 15% lower than the 5-year average. For the week ending May 10, Baker Hughes reported 149 gas-directed rigs, up 3 rigs from the prior week. Oil-directed rigs were at 563 for the same period, an increase of 6 rigs.

Weekly Power Report:

• Forward prices were down in PJM and MISO ranging from 0.7% to 4.3%. Forward prices were up in CAISO (3.0-3.4%) and ERCOT (.5%)

Great Lakes Electric Summary

• The Great Lakes Region’s forward power prices softened this week despite the two-week rise in natural gas prices which continue to find support from bullish factors as we rapidly approach summer. Due to a lack of a typical Spring season, natural gas storage inventories have been unable to make-up significant ground during this low demand period of the year which is critical to back-fill storage levels ahead of summer usage.  We went from lingering cold and heating demand in the north and west during April to heightened cooling demand in May, with no real period of reprieve.  Forward power prices in the GLR have actually decreased by an average of -3% over the past week with the balance of 2022 unchanged during that time.  Over the past month, the 2022-2023 term averaged a +8% increase while the 2024-2026 dropped by -3%. The day ahead index settlement prices continue to be higher month-over-month as well as year-over-year. Thus far, the final day-ahead index power prices in COMED are averaging $69.40/MWh or +39% higher than the previous month as well as 177% greater than the May average from a year ago, while the monthly average settlement price for ADHub is $78.47/MWh or +20% higher than the previous month as well as +176% higher than last year in May. In Michigan, the month-to-date day-ahead index power prices are averaging $77.34/MWh or +21% higher than the previous month as well as 175% greater than the May average from a year ago, while the monthly average settlement price thus far in Ameren is $78.65/MWh or +28% higher than the previous month as well as +195% higher than last year in May.
• Grid operators are warning of potential generation shortfalls in the state of Michigan this summer due to a potentially warm summer that could stress the grid, with MISO or the Midwestern Independent System Operator projecting a peak forecast of 124 gigawatts, higher than the current 119 GW of available power generation.  The result could be a series of controlled outages to help control usage and ensure system reliability, a step that has never been taken in the state before.  MISO’s summer assessment highlighted certain capacity shortfalls in the North and Central Regions that could open the potential for this shortfall.  The transition away from more traditional generators in the state toward a “greener” more renewable landscape, and the transmission infrastructure needed to support that new generation could expose an already tenuous situation if the state experiences exceptionally warm temperatures this summer.    Source: Fox News

Northeast Energy Summary

• New England wholesale index and forward pricing continue to swing with great volatility and generally in an upward trajectory. The increase in domestic natural gas prices have swung both day-ahead and real-time power prices to seasonably high settles. While February expectedly saw high $14/MMBtu natural gas prices correspond to $100+/MWh prices due to known regional fuel constraints, typical spring shoulder season index settles have near/doubled their previous 5-year averages in March through May. Lingering winter cold in March pushed the monthly average to $67/MWh while gas averaged $6.81/MMBtu. April gas prices stayed flat to March, but a tapering of heating demand lowered the index settle by $5/MWh to $62/MWh. May, which typically mixes both residual heating demand and some later cooling demand has outpaced both previous months at $76/MWh, and while the month has generally lacked any temperature extremes (save for this most recent weekend of 90+ degrees) the biggest driver has been the uptick in gas prices which has average an abnormally high $7.64/MMBtu for the month. Taking its cue from these elevated spot prices, forward New England energy prices have remained elevated with Calendar 2023 now 85% above the 2-year average and calendar strips ‘24-‘26 currently 38, 29, and 27% higher than their 2-year averages respectively. 
• The NYISO’s forward power prices retreated last week, with all zones and terms seeing a pullback relative to the week prior.  Variable temperatures throughout the country have kept heating/cooling demand and index prices elevated recently, but after a bout of cool air moves across the Midwest and East early in the week, temperatures will warm up later this week, with spikes into the 90s. Index settlement prices continue to come in higher this month versus last, and considerably higher than prices a year ago. So far in May, day-ahead index power prices in Zone J are averaging $73.33/MWh or +13% higher than the previous month as well as 181% greater than the May average from a year ago, while the monthly price for the Zone F is settling at $93.86/MWh or +24% higher than the previous month as well as a whopping +223% higher than last year in May. Forward power prices across zones have retreated by an average of -10% over the past week for the Bal 2022-2027 term with the front end moving more significantly that the back end (Bal’ 2022-2023 terms are down as much as -20% week-over-week in several zones in upstate). The 2023 winter strip in Zone G is 218% above year-ago levels, currently trading at $181.95/MWh.

ERCOT Energy Summary

• On May 10th, the California Public Utility Commission (CPUC) issued a ruling reopening the record on the commission’s Net Energy Metering 3.0 (NEM 3.0) proceeding. On December 21st, the CPUC issued a proposed decision which would have adjusted the payment NEM customers receive when they generate their own electricity and provide surplus back to their utility. Essentially, the proposed decision would have changed the NEM formula such that customers would receive payment for their surplus electricity nearer to the wholesale rate, as opposed to the higher retail rate of electricity. The utilities argued that compensating customers at the retail rate of electricity led to increasingly higher costs on customers who do not self-generate, especially on economically disadvantaged customers who cannot afford solar. Supporters of the NEM 3.0 proposal believe that this reform fairly addresses deep inequities between customers with rooftop solar and those without. Strong opponents of the NEM 3.0 proposal feel it will hamper the proliferation of rooftop solar, and unduly harm customers who are doing their part to reduce overall load by self-generating with renewable resources. By February 22nd, the NEM proceeding had become so contentious that the CPUC, with encouragement from the Governor, decided to hold the NEM process and reconsider its proposal. The new proposal issued last week indicates that the CPUC will likely make changes around the edges of the NEM 3.0 adopted in the December proposed decision, generally retaining the overall framework. Comments in the new record are due June 10th with reply comments due June 24th.
• On May 13th, Governor Gavin Newsom put forth his revised budget plan of just over $300 billion for the next fiscal year, an increase of nearly $50 billion over his original budget. The full revision can be found here. With respect to energy spending, the May revision allocates $8 billion over five years to increase the state's energy system reliability and provide consumers with relief from rising electricity rates. This is in addition to the $2 billion allocated in the Governor's budget to provide incentives for long-duration-storage projects, renewable hydrogen, and industrial grid support and decarbonization projects. Due to recent supply chain disruptions, international tariff issues, and other factors, California is experiencing delays in the development of clean energy resources that are necessary for reliability as the state transitions away from nuclear and gas-fired energy production. In addition, earlier this month, the CPUC, the California Independent System Operator and the California Energy Commission jointly issued a report finding that the state could face a shortage of as much as 1,700 megawatts this summer due to extreme weather conditions, and wildfire risks, coupled with the expected retirement of gas baseload generators. Newsom’s administration is hopeful that this additional spending will ensure California remains poised to “lead the world in reducing reliance on fossil fuels, [and] deliver clean reliable and affordable energy.” It is also being widely discussed that, in addition to this greater level of funding, the Governor’s administration is re-evaluating plans to retire several high-polluting, gas-fired power plants on the Orange County coast, and the state’s remaining nuclear power plant, Diablo Canyon, in an effort to maintain reliability. State lawmakers now have until June 15th to send a balanced state budget back to Newsom’s desk for the fiscal year that begins July 1st.

Stay up-to-date on the latest energy news and information:

• Fortunato & Friends Webcast - Please join us on Tuesday, June 7th at 2 p.m. ET for Fortunato & Friends, a webcast series featuring our Chief Economist Ed Fortunato and a special guest each month. This month's webcast features Jeffrey Hirsch, CEO of Hirsch Holdings, and a discussion on Equity Markets.
• Energy Market Intel Webinar - Register for our next market update webinar on Wednesday, June 15th at 2 p.m. ET when the CMG team will provide insights on market factors currently affecting energy prices, such as weather, gas storage and production, and domestic and global economic conditions.
• Energy Terms to Know - Learn important power, gas and weather terms.
• Sustainability Assessment - We invite you to complete a brief assessment that helps us learn where your company is in building and/or implementing a sustainability plan. Through these insights, Constellation can customize solutions to meet your needs.
• Subscription Center - Sign up to receive updates on the latest market trends.

Questions? Please reach out to our Commodities Management Group at CMG@constellation.com.