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Listen: Wholesale power markets prep for summer heat, demand and possible emergencies

The North American power pricing team takes a coast-to-coast look at summer power prices, as well as forecast demand and generating capacity for ERCOT, Cal-ISO and the PJM Interconnection.

Kassia Micek, Jeff Zhou and Meaghan Coleman evaluate how the power markets are shaping up as hot weather and high demand start to set in.

For more on US power markets, check out the latest blog post by Eric Wieser at The Barrel,Summer peakloads could put stress on some US power markets as heat pushes up demand.

We welcome any feedback or suggestions for topics. Contact us at

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Podcast Transcript

KASSIA MICEK: It seems this year is going from brutal winter weather straight into blistering summer heat, bypassing spring all together.

Welcome to the Commodities Spotlight Podcast from S&P Global Platts. I’m Kassia Micek, with the Platts North American power pricing team, based out of the Platts Houston office. And I’m joined by my two colleagues.

JEFF ZHOU: I’m Jeff Zhou, with the North American power pricing team in Houston.

MEAGHAN COLEMAN: And I’m Meaghan Coleman, also based in the Plats Houston office and covering North American power prices.

Today, we’re looking ahead to summer and how power prices are shaping up as grid operators prepare to handle the summer heat expected to sweep across most of the nation in the coming month. Jeff, there’s been lots of rumblings about high levels for Texas summer wholesale forward power packages, what can you tell us about that? What have you been seeing?

JZ: Summer forward power prices for Texas have been soaring in recent months. For instance, on-peak August packages for all of the ERCOT regions – Houston, North, South and West – were all around $220/MWh earlier this month, which is more than double from the level at end of 2017.

MC: What’s driving those sky high prices?

JZ: Basically, economics of supply and demand. In its summer outlook, the Texas grid operator, ERCOT, said the planning reserve margin -- excess resources as a percentage of forecast peakload -- was expected to be about 11%, which is below the target level of 13.75%. That shrinking reserve margin is mostly due to the fact that over 4.2 GW of coal-fired generation resource has been retired in recent months.

Moreover, ERCOT projected a summer peakload near 72.8 GW, which, if hit, is about 2% higher than current all-time high set in August 2016 due to higher-than-normal temperatures across Texas.

MC: Are we seeing any market reactions for forward power prices down the road?

JZ: Looking ahead, tight markets are still expected over the next several summers as the planning reserve margin was forecast to range between 10.9% and 12.3% from 2019 through 2022.

KM: That will be something to watch in the coming months. Let’s shift to the West, where hydro generation has been picking up with the annual snowmelt. Meaghan, what are you seeing?

MC: In the Northwest, hydro generation has been above normal, which in turn has led to low power prices, in the single digits and even in negative territory.

KM: What about down in California?

MC: California is a mixed bag. Last year, hydro generation made a return with above-normal conditions, which filled rivers and reservoirs to levels not seen in a few years. 2018 is a different picture as winter precipitation levels well below normal, which results in lower hydro generation.

The California ISO’s summer outlook projected hydro generation falling about 1,300 MW as the summer progresses.

KM: What does that mean for the rest of the fuel mix?

MC: Solar generation has been making strides, which should help fill in for retiring natural gas-fired power plants.

Further, natural gas storage issues at Aliso Canyon along with outages on four other key natural gas pipelines in the state may make natural gas supply tight, especially if the one-in-ten peak demand forecast of 51,632 MW is reached.

And as a result of these factors - low hydro, retirements and gas supply - the Cal-ISO said it may have to declare a Stage 2 Emergency for at least one hour this summer, if operating reserves fall below 5%, something the market has not seen for 12 years.

KM: So what does that all mean for forward power prices?

MC: Looking at prices for Southern California, SP15 on-peak third quarter packages have moved into the low $50s/MWh, well above where the 2017 Q3 package was a year ago in the high $30s/MWh.

JZ: So prices are up year on year in ERCOT and the West with tighter expected supply. Kassia, is that also happening out East?

KM: Even with a hotter-than-normal weather forecast this summer, the PJM Interconnection expects to have a reserve margin of 28%, the largest across the country this summer and well above its required level of 16.1%.

Just for some perspective, PJM is the largest and oldest grid operator in the US with an expected peak of about 152,000 MW this summer, which is far from its record peakload of 165,492 MW reached in August 2006.

JZ: How is the market reacting to that scenario?

KM: Lackluster, for instance, PJM West Hub on-peak July-August prices have been averaging in the upper $30s/MWh month to date, about $6 below 2017 levels.

JZ: As things heat up across the country, we’ll be keeping an eye on all things power related. Until next time, thank you for listening.

MC: And remember, to get real-time prices and news, consider the Platts Electricity Alert. And you can find more in a subscription to Megawatt Daily.

KM: You can also find free news and content - including these podcasts - on