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June 15, 2023
Even with strong bearish fundamentals, the market found reasons to push up this week. This weekend, 8-14 temp outlook was revised to > 50% chance of above normal temps the midwest. This caused a ~$0.06/MMBTU increase in Nat Gas prices on Monday across the board.
This week's NG storage report for WE 6/9/23 we saw a build of +84 BCF on an expectation of 96 BCF. NG responded by gapping up $0.15/MMBTU for Jun23-Sep23 on an up day. The rest of the curve is up 2-3%. The driver of the miss was a significant drop in wind generation WoW (3.98 TWhs). Working gas in storage is up to 2,634 BCF, 26.5% higher than last year and 15.5% higher than the 5-yr avg.
NG spiked over last summer at a high of $9-10/MMBtU. At the time, Russia's invasion of Ukraine was 3 mos in and Europe was weening itself of Russian oil and NG. With a mild winter behind us, Enough reserves and confidence has pushed down prices to pre-invasion prices. Also, diminished demand for mfg are applying downward pressure. Nat Gas prices in the 12, 24 strips range from mid $2-mid $3 range/MMBTU.
FERC Chairman Plans to Finalize Major Grid Rules in the Next Year or Two
The chairman of the Federal Energy Regulatory Commission (FERC), Willie Phillips, aims to complete major transmission proceedings within a year or two. This includes reforms in interconnection queue, regional transmission planning, cost allocation, and the commission's backstop siting authority. Phillips believes that these measures will be the most significant actions taken by FERC to promote the development of electric transmission in a generation.
The first focus will be on interconnection queue reform, which is expected to be completed in the coming months. This reform is seen as a key step in unlocking the bottleneck and allowing new resources to be integrated into the grid. The proposed rule by FERC has already motivated different regions in the country to implement their own interconnection queue reforms. Phillips assured that FERC is working as fast as possible on the broader suite of transmission proposals and hopes to have all the reforms completed within the next 12-24 months. Phillips explained that the rules need time to ensure they are developed correctly, as the industry is undergoing significant changes.
During the hearing, some Republicans raised concerns about the costs associated with renewable energy and grid expansion. Commissioner James Danly argued that subsidized renewables distort capacity prices and lead to the retirement of dispatchable resources. He also mentioned that FERC is considering socializing the cost of transmission to facilitate the market entry of subsidized renewables, which he believes would burden taxpayers.
Commissioner Clements Dissents as FERC approves PJM Capacity Auction Delay
The Federal Energy Regulatory Commission (FERC) has approved a request by PJM Interconnection to delay a series of power capacity auctions in order to pursue market reforms. While FERC determined that the reforms proposed by PJM justified the delay, Commissioner Allison Clements dissented, calling the decision "a recipe for chaos." PJM had proposed a one-year delay for its next forward capacity auction as it undergoes a fast-track review of its market rules with stakeholders. This review was prompted by declining capacity prices and the need to address retirements of existing generation and the pace of new generation entry.
PJM cited an analysis warning of a potential mismatch between retirements, load growth, and new generation entry as a justification for the delay. The proposed reforms aim to address correlated generator outages, allow capacity sellers to reflect market risks in their offers, and enhance capacity accreditation methodologies for all resource types. PJM plans to file a package of market reforms with FERC by October 1.
FERC approved the delay despite concerns raised by multiple state regulators, stating that the potential benefits of delaying the auctions outweigh the potential harm. Commissioner Clements, however, expressed concerns about the precedent set by the decision and warned of potential chaos if grid operators are allowed to schedule auctions at their discretion. PJM has announced that capacity auctions will resume according to an illustrative schedule, with the goal of returning to a regular three-year forward schedule by May 2026.
Overall, FERC's approval allows PJM to proceed with its market reforms but has generated dissenting opinions regarding the potential implications and uncertainty created by the delay.