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The Western US was the only region with higher prices in February as wholesale power prices climbed an average of 88% year over year on below-normal temperatures that drove up thermal usage despite elevated natural gas prices.
Population-weighted average temperatures in the California Independent System Operator footprint were 8% lower than a year ago in February, causing a 48% jump in heating degrees days, according to CustomWeather data.
The drop in temperatures and an increase in severe weather, drove up power and gas prices.
SP15 on-peak day-ahead locational marginal prices averaged $66.15/MWh in February, a jump of 63.8% compared to a year ago but down 52% from last month, according to CAISO data. Likewise, NP15 on-peak day-ahead LMP averaged $73.61/MWh, climbing 57.7% year over year, but falling 49% from January.
In the Northwest, Mid-C on-peak day-ahead prices reached a year-to-date high of $249.13/MWh for Feb. 24-25 as prices averaged 129.5% higher for the month compared to a year ago, according to pricing data from Platts, a part of S&P Global Commodity Insights. Mid-C on-peak real-time prices averaged $73.52/MWh, a spike of 108% year over year.
Elevated gas prices helped drive up power prices, as SoCal city-gate spot gas averaged $7.626/MMBtu in February, 56.5% higher year over year, but down 57.5% month on month, according to Platts data.
Gas generation grows
Despite higher gas prices, natural gas continues to lead the CAISO fuel mix. Natural gas-fired generation made up over 40.4% of the total fuel mix in February, jumping 13.4 percentage points year over year.
Meanwhile, imports dropped 14 points to account for 13.4% of the mix, according to CAISO data. CAISO typically receives nearly a quarter of its generation via imports from the Northwest.
"Northwest loads were up 3%, but more important was the 24% drop in hydro output and the impact of Washington's carbon cap on the cost of gas generation," said Morris Greenberg, senior manager of North America power analytics with S&P Global Commodity Insights.
Bonneville Power Administration hydro generation for February was down 7 points year on year. However, increased precipitation from winter storms boosted CAISO's hydro share to an average of 7.6% for the month, up 1.1 points from a year ago.
California snowpack has risen to 166% of average, according to California Department of Water Resources data. Shasta Lake reservoir storage is currently at 84% of average, up from 52% a year ago.
Gas generators supplied 234 GWh/d in February, according to CAISO data, and S&P Global data shows the gas power burn was 1.847 Bcf/d, up 2% from January and up 62% from February 2022.
Even as gas forwards fall, S&P Global analysts expect CAISO's gas-fired generation to fall as well, averaging less than 118.68 GWh/d in April and burning 0.791 Bcf/d, assuming heat rates similar to April 2022.
SoCal Gas March rolled off the curve at $5.411/MMBtu, 22% higher than where the 2022 contract ended, according to Platts data. However, contracts down the curve are trending lower than their 2022 counterparts. The April contract is currently around $3.637/MMBtu with May around $3.208/MMBtu, 18% and 23% below 2022 packages a year ago, respectively.
Meanwhile, power forwards continue to trend higher across the West.
Mid-C on-peak March rolled off the curve at $94.95/MWh, 156% higher than the 2022 package a year ago, according to Platts data. On-peak April is currently in the low $70s/MWh, 97% above the 2022 package a year ago, while the May package is in the upper $40s/MWh, 76.5% higher.
In the Southwest, Palo Verde on-peak April is in the upper $40s/MWh, 48% above its 2022 counterpart a year ago, while the May package is in the low $40s/MWh, 28% higher, according to Platts data.
The March weather outlook indicates a greater probability for below-normal temperatures and above-normal precipitation across the West, according to the National Weather Service's Climate Prediction Center. However, the three-month outlook indicated mostly equal chances for above- and below-normal temperatures across the West, while the Northwest is expected to have below-normal temperatures with the Desert Southwest above-normal temperatures.
California hydro should see a large increase from the winter storms, Greenberg said, adding the Northern Sierra region, which has been lagging in terms of snowpack, should see significant accumulation in March, while Central and South California are already much above normal.
However, The Dalles Dam water supply forecast is currently at 84% of normal for the April-September forecast period, a drop of 14 points year on year, according to Northwest River Forecast Center data. So, declines in the Northwest hydro outlook could offset gains in California, Greenberg said.
"There are also those Washington carbon allowances to consider," Greenberg said.
Results of the first Washington carbon allowance auction are expected to be published March 7.