The September natural gas wholesale contract was lower once again yesterday as it dropped $0.093 on weather forecasts being cooler than normal in the Midwest and the Northeast in the 6-10 and 11-15 day time frames. So the only area remaining with extreme weather is the hotter than normal conditions in Texas. Texas continues to be forecasted through the rest of August to be hot and dry. The financial markets had a reprieve yesterday as well as the stock market had been higher over the last four days by 7.5%. As we start to approach the shoulder months of September and October, energy analysts will be focused on the end of season inventory levels with forecasts being on the order of 150-200 bcf below last year’s levels currently by the end of October. This is important because if one could imagine being at the last gas station before embarking across a desert of 300 miles and your vehicle is only three quarters full. I am sure a person will have anxiety of not making it across and being stranded somewhere in no-man’s land with no cell phone connection. The same issues arise in our market if we don’t have adequate reserves going into the winter. The winter forecasts are coming in from several meteorologists and it looks like the Southeast could be colder than normal through January 2011. So this winter is shaping up to be colder than normal in some key areas as the last two prior winters’ we have experienced.
In the lone star state yesterday, the Electric Reliability Council of Texas executed short-term contracts with two generation owners to activate four “mothballed” units to address emergency situations during the extreme heat and drought, an ercot spokesperson announced. NRG Energy and Garland Power and Light will return two natural gas units each, for a total of approximately 400 megawatts (MW), to be available if needed through October 2011 to reduce the risk of rotating outages across the ERCOT region. The temporary contracts are based on the pricing methodology used for reliability-must-run units under the ERCOT market rules. The payments will be figured on a cost-recovery model, meaning the owners get paid for their fixed costs (staff, maintenance, etc.) as well as a cost for fuel. To minimize the impact of this temporary reliability tool on other market participants in the competitive market, the four units will be called on only when necessary to avoid emergencies so the units will not displace units that are on-line and bidding into the market. Chairman Donna Nelson of the Public Utility Commission of Texas addressed the urgency of the current situation in an Aug. 12 letter and urged ERCOT to take actions necessary to address the extreme circumstances. The record breaking heat and drought have placed increased stress on the generation facilities operating within ERCOT, increasing the likelihood of the unplanned mechanical breakdown of generation units at a time when our electric demand is soaring,” Nelson said, and directed ERCOT to “look at all available options to ensure the reliability and adequacy of the ERCOT transmission grid at this critical juncture.”
As we have seen this past summer, utilities manage electricity demand during a grid emergency with a process called demand response. Some consumers were able to conserve without any thought this past summer since their electricity companies adjusted their thermostats for them as we saw in ERCOT and the BGE service territories. That is a demand reduction where businesses and households respond to an emergency by using less electricity. If demand response can cut overall electricity usage, that's great. But the real goal is to shift usage from the peak demand hours, 3 to 7 p.m., to other times of the day. That could allow the oldest power plants, used only during peak times, to retire, cutting electricity costs and pollution. Industrial companies have long had arrangements with their power companies to do just that. Big companies that got paid to dial back during the Aug. 4 emergency saved Texas from rolling outages. But those programs leave out residential customers, who use half of the electricity generated on a hot summer afternoon. Now some electricity companies are experimenting with technology that communicates with souped-up home thermostats. Grid geeks talk about the day when a power company can use smart meters to communicate with any appliance in the home. ERCOT is working on protocols to add residential customers into the demand response market in the next few years, allowing the grid operator to measure and count on conservation, rather than just begging for it.