Energy Market Update

By The Numbers:

• NG '23 prompt-month NYMEX settled at $2.21/MMbtu, down $.12/MMbtu on Monday, March 20. 
• WTI '23 prompt-month crude oil closed at $67.64/bbl., up $.90/bbl on Monday, March 20.

• The Energy Information Administration (EIA) reported a withdrawal of 58 Bcf out of underground storage for the week ending March 10. Inventories are 1,972 Bcf; gas inventories are 24% greater than the five year average and 36% greater than the same time last year.  For the week ending March 7, Baker Hughes reports 153 natural gas rigs in operation, down one from the prior week.  Crude oil rigs were reported at 590, down two for the same period.

Weekly Power Report:

• Forward prices were once again fairly stagnant in all regions. PJM saw price decreases of 0.5%-0.6%, MISO saw price decreases of 0.4%. CAISO saw slightly higher prices ranging from 1.4%-1.9%.

Great Lakes Electric Summary

• The Great Lakes Region forward power prices have been quiet on the front part of the curve through 2024 as the market fundamentals remain bearish as we exit winter.  Prices on the back-end of the curve, though, from 2025-2027 have been higher of late as future capacity concerns in the market has provided price support over the past few weeks.  The GLR region forward electricity prices were +2% higher on average across all yearly terms through 2027, with the 2023-2024 prices -1% lower and the 2025-2027 term prices +5% higher on average.  Over the past month, the 2024 term prices are +2% higher, while the 2026-2027 term prices were +14% higher due to the concerns mentioned previously. Compared to the all-time highs, the entire 2024-2027 term is -9% off of the highs, with 2024 down by -22%, while further out on the price curve, the 2026-2027 term is priced only -3% off of the highs.  Index prices continue to be soft compared to last year.  In COMED, the average monthly settlement price thus far for March is averaging $23.53/MWh or -26% lower than last year for that month, while the settlement average price in ADHub is $30.19/MWh or -32% lower than March’s average last year.  In Michigan, the month-to-date average monthly settlement price is $29.98/MWh or -35% lower than last year’s average for March, while the settlement average in Ameren is $28.40/MWh thus far or -31% lower than in March of 2022. 
• FERC Commissioners Express Concern Over Long-term Capacity Markets - During FERC’s monthly open meeting on 3/16, several FERC Commissioners expressed concern over forward capacity markets and their ability to ensure reliability particularly in PJM, ISO-NE and MISO.  The Commissioners noted upcoming forums it has planned, one covering ISO-NE winter reliability concerns (scheduled for 6/20) and one covering PJM capacity market (details not yet established), as opportunities to drill down on the issues in those regions as well as ongoing stakeholder processes intended to address them (e.g., the recently announced fast-path stakeholder process in PJM that plans to cover capacity accreditation improvements, the ability to price CP risk in capacity offers and related issues).  In addition, several Commissioners expressed their views on capacity markets generally.  Specifically, Commissioner Christie opined that “the [capacity] markets are not alright,” siting the PJM IMM’s recent state of the market report for support.  Christie, like the IMM, believes that CP is a “failed experiment” and expressed concern that the capacity market is losing needed dispatchable resources that will undermine reliability.  

Northeast Energy Summary

• ISO New England continued to introduce its proposal to change the Day-Ahead Energy Market design (aka Fuel Security Chapter 3), including the procurement of day-ahead energy call options (i.e., reserves) co-optimized with energy.  The ISO proposes to procure two types of day-ahead reserve products: (1) Energy Imbalance Reserves, to address any difference between forecast and actual load in real-time; and (2) Flexible Response Services, similar to how real-time operating reserves are defined today.  The proposal closely resembles the Energy Security Improvements that the ISO filed with FERC in 2020, although notably does not include the 90 and 240-minute day-ahead reserve products (the “Replacement Energy Reserves”).  The ISO explained that it plans to adopt a strike price adder intended to balance a reduction in market risk (and thus the expectation of lower overall costs to load) and the reduction in incentives to deliver on day-ahead ancillary products caused by a strike price adder.  The ISO also continued to discuss a mitigation proposal for these products, including the application of physical withholding rules and the fuel price component of market offer Reference Prices.  The ISO will ask for a vote on the proposal at the August NEPOOL Markets Committee meeting and September Participants Committee meeting.   
• Last week, the Connecticut Department of Energy and Environmental Protection (DEEP) announced it will conduct two new procurements for grid-scale, zero-carbon energy resources this year.  The announcement did not specify a target size but said the state will seek zero carbon resources and offshore wind in furtherance of the state mandate to achieve a zero-carbon electric sector by 2040.  DEEP will hold a virtual public informational meeting to receive stakeholder input to inform the development of the requests for proposals (RFPs) on 3/29.  The announcement came on the same day that DEEP Commissioner Katie Dykes appeared before the legislature’s joint Energy & Technology Committee on non-related bills.  During those hearings, Dykes responded to several questions about procurements and, while not naming any particular projects but hinting at the recent issues with the Massachusetts’ wind procurements, said that she does not believe it is appropriate to re-open contracts that have already been approved and has been following the progress of such negotiations in nearby states.
• On March 13, the New York the Assembly and Senate released their one-house budget proposals in response to Governor Hochul’s proposed Executive Budget, released early last month. The legislature’s proposals kickoff a three-week marathon of negotiations as New York moves to approve its annual spending plan by April 1.  Democratic lawmakers incorporated significant climate-related proposals in their budget documents, including provisions to prohibit fossil fuel appliances in most new buildings.  The Assembly included provisions requiring new construction to be electrified - a significant step after Assembly Democrats did not endorse the measure last session.  The Senate and Governor Hochul are advancing similar proposals for the second year and if passed, would make New York the first to enshrine into law a prohibition on fossil fuels in new buildings. A key plank of Hochul’s climate agenda includes championing an economywide “cap and invest” program in her January State of the State address.  While sparse on details, Hochul directed the Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA) to establish a to-be-determined economywide cap and invest program with a declining cap on greenhouse gas emissions and corresponding auctions of allowances.  In her executive budget proposal, the Governor calls for creation of a Climate Action Fund to facilitate dispersion of the program’s revenues to consumers and small businesses.  The Senate’s version of cap and invest requires the DEC to ensure pollution is reduced in disadvantaged communities by potentially setting facility-specific declining limits on polluters in those communities.  It would also prohibit any trading or transfer of allowances after they are sold and sets more stringent requirements on exemptions for “energy-intensive and trade-exposed” industries that might leave the state due to the costs of purchasing allowances. 

ERCOT Energy Summary

• If you go by the astronomical definition of the seasons, Spring arrived yesterday, Monday, March 20th in the Northern hemisphere. This was the vernal equinox and the first of two days every year when day and night are roughly 12 hours each everywhere on Earth. Said differently, Winter ended yesterday, although if you are in California, you probably wouldn’t know it unless you recognized the significance of the day on the calendar. Yet another in a series of Pacific storms impacts the state beginning today, bringing more heavy rain and snow to an already waterlogged and snow packed region. This latest storm’s track is dipping further south than those in recent weeks, so the LA Basin and San Diego are looking to bear the brunt of the flooding and wind damage this time around. Carrying the winter trend into the spring, the storm will drop more heavy snow on the Sierra, adding to the near-record snowpack which was registering at 215% of normal at the end of last week. A drier period will follow this event to slide the work week into the weekend before the models suggest another potential round of storminess next week. Temperature wise, widespread belows to much below normal look steady and common with no notable warmth in sight. Our favorite reference point for the LA Basin, Burbank, is set to see average temperatures this week fall from 58 to 51 which means overnight lows will typically start with the number 4 and the possibility of seeing a couple 3s show up can’t be ruled out.
• This weather outlook means PG&E and SoCalGas should see gas sendouts jump by Wednesday as heating demand once again draws molecules out of caverns across the state. The PG&E Redwood path outage started Monday, dropping flows by 0.5 Bcf/d, poor timing considering their system demand is expected to climb to 2.6 Bcf by Wednesday. SoCalGas managed to tuck a few hundred cubic feet into storage over the weekend but is going to pull that right back out again as their imports are being throttled by the Line 235 maintenance outage. Sendouts on their system should jump from 2.2 Bcf to 3.2 Bcf by tomorrow and move the needle a little closer to the E side of the range as they’re coming into the week with less than 38 Bcf of gas remaining. At a time when both PG&E and SoCalGas are usually flipping to consistent injections, continued draws this late in the season are building a support base for gas basis this spring and summer as the price incentive needs to be there for molecules to make the long haul west out of the Permian and Rockies basins instead of taking the shorter route to the Gulf Coast.
• The CAISO is finding itself in a bit of a pickle as the spring hydro/wind/solar outputs are picking up at the same time power demand remains robust. Grid dispatchers need thermal gens to be available during the morning and evening ramp periods but would like them to disappear for the midday block of hours when solar and wind crank out the megawatts. Many of the fossil fuel units are unable to start/stop on that schedule and instead can only downshift to their Pmin after the morning ramp to ride out the midday hours and be available for the evening peak. Hydro usually helps operators balance the grid, but that shock absorber is less available now as unregulated waterflows are gaining at the same time reservoir operators need to make space available in the pools to capture the inevitable snowmelt, so regulated waterflows are hitting the system as well. This confluence of events is driving the CAISO to boost solar curtailments much to the chagrin of solar projects across the state. More on this next week.

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