Midwest Electricity Prices Surge to 1-Year High Amid
Prolonged Heat Wave
By Josh P. Hamilton
Midwest Power Surges to 1-Year High Amid Heat Wave (Update1)
(Adds detail about June 1998 in 5th paragraph; updates
prices; adds comment in 11th-12th paragraphs.)
New York, July 23 (Bloomberg) -- Midwest power prices surged
for a third day, reaching the highest levels since skyrocketing
to a record last summer, on expectations for strong demand during
a heat wave in the central and eastern U.S.
Cinergy Corp., parent of Cincinnati Gas & Electric Co.,
asked customers in Ohio, Indiana and Kentucky to conserve power
to prevent shortages, expecting a second day of record demand for
air conditioning. Regional prices surged to 26 times their
average of the past year, though short of the June 1998 record.
Utilities in the Midwest ''have the possibility of setting
new records'' for demand, said Kevin Fox, general manager of
power trading at Aquila Energy Corp. in Kansas City, Missouri.
Companies in a nine-state power grid from Michigan to Tennessee
have been reporting record-high demand in recent days, Fox said.
Electricity for guaranteed next-day delivery in the East
Central Area Reliability Coordination Agreement region rose as
much as $410, or 38 percent, to $900 a megawatt-hour. Just two
weeks ago, next-day power was trading at $19 a megawatt-hour amid
mild temperatures.
Prices haven't been this high since last summer, when a
blistering heat wave coincided with some unexpected shutdowns of
power plants. Next-day prices jumped to $1,584 a megawatt hour in
June 1998, and utilities paid as much as $7,000 to get power for
immediate delivery.
In New York today, electricity for August delivery at the
Ohio Cinergy hub rose as much as $10, or 10.2 percent, to $108 a
megawatt-hour on the New York Mercantile Exchange. Prices have
risen 57 percent this week.
Trading in the August contract was halted for a half hour
early in the afternoon after the contract surged the exchange-
imposed limit of $10 to $108 a megawatt-hour. After the break,
trading resumed with an expanded $20 limit.
$3,000
''We sold power for immediate delivery in excess of $3,000
yesterday,'' Aquila's Fox said. ''I expect to see that again
today.''
While prices in the neighboring power grid for Pennsylvania,
New Jersey and Maryland fell slightly today, the grid ''is
curtailing exports, putting a squeeze on mid-continent power,''
Fox said. Yesterday, when the grid stopped shipping power outside
its region, Midwest prices soared from $200 to $3,000, Fox said.
First Energy Co., which serves more Ohio customers than any
other utility, is cutting power to business customers with
special contracts to conserve energy, said Ralph DiNicola, a
company spokesman.
LG&E Corp., the owner of Kentucky's largest utilities, said
it was curtailing power service to its interruptable customers
this afternoon. The company said it had record electricity demand
yesterday.
Utilities said they curtailed supplies to interruptible
customers this week, and expect to do so today. Utilities give
discounts to some business customers in exchange for being
allowed to cut their power when supplies are short.
Tight Supplies
''Assuming no outages, we're tight but manageable,'' said
ECAR's executive manager, Brant Eldridge. ''If this heat keeps up
for four or five days we could see a record next week.''
ECAR coordinates efforts to ensure power deliveries in
Michigan, Indiana, Ohio, Kentucky, West Virginia and parts of
Virginia, Maryland, Pennsylvania and Tennessee. ECAR forecast
peak load of 94,000 megawatts this summer, up from last year's
peak of 91,605.
Prices should ease late this afternoon as demand typically
begins to fall off on Fridays and over the weekend, traders said.
Power for delivery Monday into the Cinergy grid is selling for
around $500 a megawatt, traders said.
Late Wednesday, the National Weather Service issued a six-to
10-day forecast calling for above-normal to much-above-normal
temperatures in the Midwest, Plains and East Coast as far South
as Virginia from July 27 through July 31.
Cooling demand is expected to be 64 percent above normal in
the U.S. Midwest over the next seven days, according to Weather
Derivatives, a Belton, Missouri-based forecasting firm, with
temperatures in Chicago and Detroit in the low to mid 90s
Fahrenheit. Northeast cooling demand is expected to be 29 percent
above normal.
Last Year
In June 1998, Midwest electricity prices surged from around
$30 a megawatt-hour to as high as $7,000, when a heat wave
increased air conditioner use just as power-plant and
transmission-line outages limited electricity supplies.
Electricity prices are volatile because power can't be
stored in large volumes. Shortages, or perceptions that a
shortage is possible, can start a bidding war among utilities
that need a steady stream of supply.
Before the introduction of wholesale electricity competition
three years ago, utilities would cooperate to keep supply
adequate and prices stable, and supply extra power to each other
at or close to cost. Now, with competitive markets, supplies go
to the highest bidders.
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