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Cal-ISO, ERCOT possible rough spots as US FERC looks ahead to summer

California and Texas are two potential tight spots for power markets and energy reliability this summer, even as most regions appeared prepared to meet summer demand, staff of the US Federal Energy Regulatory Commission said Thursday.

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The agency released its energy market and reliability assessment for a 2018 summer in which temperatures are predicted to be warmer than average for most of the country, and natural gas demand for power generation has the potential to climb to record highs.

While most regions of the North American Electric Reliability Corp, are expected to meet reference margins, a level set by NERC to assess adequacy of power reserves, the Electric Reliability Council of Texas expects its margins to be below its reference margin level, FERC staff noted, amid a wave of generation retirements there.

Yet, the California power market drew the most scrutiny at FERC's monthly meeting, with Commissioner Robert Powerson remarking he was "very concerned" about reliability in the state.



In comparison to last year in the state, Alan Haymes of FERC's enforcement office said there will be less hydropower production along with gas supplies hampered by local gas transmission outages and limitations on the Aliso Canyon gas storage field. FERC's report notes that snowpack for California was only 57% of normal, and projected higher temperatures could lead to earlier melting.

"The combination will produce a situation in the coming summer that will be a focus of our attention," Haymes said. California Independent System Operator's summer assessment sees a likelihood of at least one stage 2 emergency hour leading to curtailment of non-firm loads, "and these results are not taking into account the limitations of natural gas deliverability," he said.

POWELSON 'DEEPLY TROUBLED' BY CALIFORNIA POLICY


Powelson took it further, saying he was "deeply troubled by California policymakers' refusal to support Aliso Canyon as a reliable storage facility to deal with critical backup storage, not only at the [local distribution company] level but more towards merchant power resources in the market." Moreover, Powelson warned that with certain decisions in the state are "we're getting away from economic dispatch and we're causing tremendous cost to consumers in the California marketplace."

Haymes described a mix of decisions in the state: the California Public Utilities Commission last week approved a request to temporarily increase injections at Aliso Canyon but also denied a request to increase the storage facility's allowable injections. Despite the concerns, the reserve margin for the NERC region that is mostly Cal-ISO is expected to be 5% higher than the reference margin but supplies could tighten if high load combines with below average hydropower supply.

ERCOT expects its reserve margin to be 10.92%, below its reference margin of 13.75%, Haymes said. Nearly 4,500 MW of coal-fired capacity retired there in January and February, adding to the shuttering of 806-MW of gas-fired capacity in late 2017, and in addition to delays in building new resources, he said.

Nonetheless, "ERCOT expects to have sufficient operational tools to manage tight reserves and maintain system reliability," Haymes said.

DEMAND FOR POWER ROUGHLY FLAT, DESPITE EXPECTED HEAT


The report notes that NERC regional entities are forecasting net demand for power will be roughly even with last summer. Demand is eased despite the expectation of warmer weather because of higher use of demand-side measures in some areas and a rise in behind-the-meter distributed energy resources, Haymes said.

An extended heatwave in July or August in several major markets could increase prices and demand above the report range, with implications for natural gas storage, Haymes said, particularly if there are impacts upstream such as unexpected pipeline maintenance. Such a confluence of events could affect the ability of natural gas storage to recover at the rate expected in the report, he said, and could contribute to market tightness heading into the winter.

Despite a record dip at the start of the injection season in April, the Energy Information Administration has forecast that by November, inventories will reach about 3,800 Bcf, within the five-year range, FERC said.

The FERC report also tallied the hefty capacity additions nationwide, with 25 GW of new capacity entering service by the end of the summer, more than offsetting the 14 GW of mostly coal retirements since May 2017. In May through September, 11,286 MW of gas-fired capacity was expected to be added in the Eastern Interconnection, along with 4,835 MW of solar photovoltaic capacity and 2,476 MW of wind capacity, FERC's assessment said, using data from ABB Velocity Suite. FERC staff noted that more than half of the new solar is concentrated in North Carolina and South Carolina, while the wind capacity is more distributed across the central US.

Electric battery storage also picked up, with 720 MW of battery storage capacity in operation nationwide as of January, up 30% from the prior year.

--Maya Weber, maya.weber@spglobal.com

--Edited by Richard Rubin, newsdesk@spglobal.com