Summer Energy Market Assessment 2005

May 4, 2005

Federal Energy Regulatory Commission • Office of Market Oversight and InvestigationsDisclaimer: This Report contains analyses, presentations and conclusions that may be based on or derived from the data sources cited,

but do not necessarily reflect the positions or recommendations of the data providers.

2004 Summer Assessment:Regional Markets Could Show Stress

Under Certain Conditions this Summer – Most Notably the West.

• Especially Tight Reserves in the West

• Load Pockets

• High Fuel Costs

Regional Electric Market Issues

will Depend

On Local Resources, Demand

and Operations.

• Below normal hydro conditions

• Regions with higher likelihood of fire

• Greater reliance on gas-fired generation

• Tight reserves under extreme heat

• MISO transition to full market operation

• PJM/MISO coordination

• PJM integration of new areas

• Load pockets in SW Connecticut and Boston

• Reserves may be low for very hot weather

• NYC/LI load pockets

• Short-term price spikes

Key Electric Fuel Prices Remain High

Sources: Natural Gas Intelligence, Bloomberg, L.P. and New York Mercantile Exchange (NYMEX).

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05

Pric

e ($

per

sho

rt to

n)

Big Sandy River,West Virginia

NYMEXCentral Appalachia

Coal Futures04/29/05

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05

Pric

es ($

per

MM

Btu

)

Henry Hub Cash Price

Henry Hub Futures Settlement Price on

04/29/05

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05

Pri

ces (

$ p

er

MM

Btu

)

Transco Z6 No. 2 Heating Oil, NY

No. 6 Fuel Oil, NY

With Healthy Gas Storage Inventories,

Oil is Driving Higher Prices

Sources: Natural Gas Intelligence, Bloomberg, L.P. and New York Mercantile Exchange (NYMEX).

New England Expects Record Peak Demand With Adequate Reserves

ISO New England Peak Forecast and Load

Probability Load

Average (50%) 26,355 MW

Hot (10%) 27,985 MW

Previous Peak: 25,343 MW

ISO New England Summer 2005 Reserve Margin

0%

5%

10%

15%

20%

25%

Average Summer Hot Summer

Sources: NEPOOL 2004 – 2013 Forecast Report of Capacity, Energy, Loads and Transmission (2004 CELT Report) and discussion with ISO New England. Annual net generation from ISO New England.

Load Pockets in New England may Face Continued Tightness

• Generation and transmission capacity in SW Connecticut remains inadequate

• Secured 218 MW of emergency summer resources

Supply and Demand Conditions in

the U.S. West this Summer may

Result in Periods of Market

Tightness – Higher Prices and

Even Interruptions.

Western Generation Is Heavily Dependent on Hydro and Natural Gas

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

WECC AZN CNV NWP RMP

Ca

pa

city

(G

W)

Other

Oil

Dual Fuel

Natural Gas - Other

Natural Gas - Gas Turbine

Natural Gas - Combined Cycle

HydroCoal

Nuclear

28% reserve margin(2004 projection NERC)

Projected peak demand(2004 projection NERC)

20%

10%

63%

18%

Source: OMOI Analysis of NERC 2004 ES&D database.

Hydro and Snow Pack are Below AverageHydro Generation Snow Water Equivalent

In-State Capacity (MW)

Additional Capacity Created

Downstream (MW)

One Year Ago(% of

average)

4/27/05(% of average)

California

British Columbia

Idaho

Washington

Montana

Oregon

10,400

10,000

2,700

21,500

2,700

9,100

0

16,200

19,700

0

16,200

0

78%

80%

60%

74%

70%

71%

147%

89%

75%

32%

59%

53%

Sources: OMOI analysis; derived from data from EIA, BPA, Natural Resources Conservation Services, and Bloomberg, L.P.

Southern California’s

Summer 2005 Resource

Margins are Inadequate for an Extremely Hot Summer

CAISO Southern Region Summer 2005 Reserve Margin

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

June July August September

Desired Normal Summer Hot Summer

Sources: OMOI Analysis of the California Energy Commission Summer 2005 Electricity Supply and Demand Outlook Draft Staff Report, March 2005 and CAISO 2005 Summer Operations Assessment, March 23, 2005.

Most Recent NOAA Forecast

is for Above Average Western Summer

Temperatures

What Could Trigger Periods Of Electric Scarcity in the West?

• Hotter-than-average weather

• Transmission disruptions

• Generation disruptions

What Effects Would Scarcity Have on Western Markets?

• Price levels are likely to be higher all summer due to more expensive gas.

• Spikes possible due to extraordinary heat or system failures.

• Forward contracting, Commission rules and oversight make spot price manipulation less likely.

Focus of Oversight Attention This Summer

•Western market behavior and prices

•New England prices in load pockets

•MISO implementation

•Price spikes in New York

•Natural gas storage fill

Contributors

• Stacy Angel

• William Booth

• Judy Eastwood

• Robert Flanders

• Alan Haymes

• Matthew Hunter

• Steven Michals

• Colin Mount

• Thomas Pinkston

• Clint Ramdath

• Jamie Simler

• Harry Singh

• Jennifer Tremper

• Julia Tuzun

• Dean Wight