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FERC winter outlook flags risk of price volatility in Northeast, West

Regional pipeline constraints in New York City, Boston and Los Angeles increase the risk of energy market price volatility this coming winter, the Federal Energy Regulatory Commission said Oct. 18.

While electricity reserve margins exceed reference margins this winter for all areas assessed, fuel security — particularly the availability of natural gas and fuel oil — requires vigilance, given the increasing use of gas-fired generation, staff said. The findings of FERC's 2018-2019 winter energy market assessment were presented Oct. 18 at FERC's open meeting.

Even with a warmer-than-average winter forecast, there may be still be prolonged cold spells that could stress gas and electric markets, the report said.

John Collins of FERC's enforcement office noted that basis futures prices have generally increased around the country, with New York City and Boston averaging $6.03/MMBtu and $8.21/MMBtu, up 47 cents/MMBtu and $3.40/MMBtu, respectively, from a year earlier. "This suggests a market expectation that both regions may face pipeline transportation constraints this winter," he said.

He said gas infrastructure outages in Southern California are likely to impact gas and electric markets this winter. Combined, the outages have cut receipt point capacity on the Northern Zone of the Southern California Gas Co. system by about 1.07 Bcf/d, he said. Gas system restrictions increase the potential for gas curtailments, but power system flexibility and cooperation between SoCalGas and California ISO should help maintain electric reliability, he said.

New England continues to be a potential trouble spot, amid growing gas dependence for home heating and generation and constrained pipeline capacity, FERC staff said.

Two rule changes could help, however, said John Sillin of FERC's enforcement office. ISO-NE is integrating price-response demand into the daily energy market and adding pay-for-performance capacity market incentives.

Apart from tight spots around Boston, New York City and Southern California, FERC staffer Adam Bennett said new pipeline capacity out of the Marcellus and Utica to the Midwest, Southeast and parts of the Northeast should ease some constraints.

Commissioner Cheryl LaFleur said she welcomed a fact-based approach, amid recent concerns aired about natural gas pipeline network resilience. She worried some people are "overly drawing from specific situations that are quite idiosyncratic in particular parts of the country."

As part of the presentation, staff noted that nuclear and coal plant retirements and natural gas plant additions are leading to a high percentage of gas capacity in both regional transmission operator and bilateral markets. RTOs are acting to ensure there are adequate supplies, FERC staff said. ISO New England and PJM Interconnection have added incentives for capacity performance under emergency conditions, and ISOs have bolstered gas-electric coordination with pipelines. Sillin noted that PJM Interconnection will see the most total generating capacity added this winter, predominantly gas-fired.

Reflecting on the New England market, Commissioner Richard Glick suggested a need to look at more demand-side management to "squeeze more out of the market ... if we're not going to get more pipelines for one reason or another."

Asked why futures prices in New England have gone up despite an expected warmer winter, Collins suggested gas market participants may be more conservative and seek to hedge fuel supplies, after price increases during last winter's bomb cyclone, when Transcontinental Zone 6 exceeded $140/MMBtu and Algonquin City Gates topped $80/MMBtu. On the power side, the end of New England's winter reliability program and start of pay-for-performance add uncertainty, he added.

Collins suggested lower storage levels going into this winter compared with last stem from strong pulls on storage last winter and an increased reliance on gas for power during the summer. That trend is expected to continue through the end of the winter, he said.

Maya Weber is a reporter for S&P Global Platts, which like S&P Global Market Intelligence, is owned by S&P Global Inc.