Couple of interesting articles from the LA Times:
Consumers to Feel Heat From Newest Surge in Gas Prices
By NANCY RIVERA BROOKS, Times Staff Writer
California's wholesale natural gas prices skyrocketed Wednesday to levels nearly double the steep tab paid last week and nearly 16 times the usual winter cost--a staggering increase that will eventually filter down to consumers.
An average of spot gas prices at the California border--a price that affects what most large users in the state pay--hit $36.25 per million British thermal units, with traders asking as much as $41. A year ago, the price was $2.30 per million BTUs, the standard measure for large natural gas trades.
Robust demand for natural gas, particularly for generating electricity, and a tightening in supply have California paying the highest prices in the U.S.
On the New York Mercantile Exchange, natural gas futures burned past previous records with the contract for January delivery closing at $8.485 per million BTUs, up $1.101. That was the first time natural gas prices rose above $8 in the 10 years that futures contracts have traded on the Nymex.
Meanwhile, the Energy Information Administration warned that winter heating bills will be "substantially" higher than the agency forecast just a month ago because of the recent surge in natural gas prices. Winter bills will jump 50% from a year ago in homes using gas, predicted the EIA, an arm of the Energy Department.
Luckily for consumers and small businesses, they are partly shielded from the volatile spot market for natural gas, although the latest increases will eventually boost home heating bills. California consumers are already being socked with increases on their November gas bills of 50% on average, with worse to come in December and January.
But large commercial and industrial users are being clobbered even harder. Analysts fear that prices of a broad range of consumer products and services could be affected.
"This is amazing," Fadel Gheit, senior energy analyst for the New York investment firm Fahnestock & Co., said of the $41 asking price for gas at the California border.
"The Mafia charges less. You can buy illegal drugs for less," Gheit said. "If this were oil, it would cost the equivalent of $240 a barrel" given the relative heat production of the two commodities.
High gas prices are helping to boost electricity prices, which hit the market limit of $250 per megawatt-hour for every hour of Tuesday and Wednesday--the first time the cap was reached for every hour of the day on the California Power Exchange, the state's primary market for electricity.
Southern California Edison said the natural gas price surge is even raising the price of electricity from sources that don't burn natural gas. SCE's power contracts with renewable sources--solar, wind, geothermal and biomass--are tied by law to the cost of natural gas.
SCE, a unit of Edison International in Rosemead, has appealed to the California Public Utilities Commission for emergency help, contending that high gas prices projected for December will increase renewable-energy costs by at least $115 million for the month if a different index to figure costs is not adopted. The PUC is set to take up the matter today.
Natural gas prices are highest in California for several reasons, said Seth Blumsack, an economist with Economic Insight Inc., a Portland, Ore.-based energy consulting firm.
Demand for natural gas has risen because of colder-than-usual weather and because of heavy use by California power plants, which primarily burn natural gas, he said.
In addition, pipelines into the state are running full or are at reduced capacity so that "spare capacity on the pipelines is going to the highest bidder," Blumsack said.
Supplies to California were sharply reduced after a deadly explosion in August along a major pipeline run by El Paso Natural Gas. The pipeline has been operating at 85% capacity ever since, as the company, a subsidiary of El Paso Energy Corp. of Houston, has been unable to complete repairs.
But there have also been allegations of market abuse. The PUC contends that El Paso has withheld capacity on the pipeline to boost prices, a charge El Paso has denied.
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Futures Shock
Natural gas futures continued their relentless upward spiral, closing Wednesday at a record $8.49 per million British thermal units in New York. That's a nearly fourfold rise this year.
State Inspectors Visit Idled Power Plants
Energy: They want to know why the facilities are not generating electricity. But deregulation leaves the value of such questioning in doubt.
By NANCY VOGEL, Times Staff Writer
SACRAMENTO--State inspectors fanned out across California on Wednesday after being dispatched to learn why idled power plants are not generating electricity--a move that angered the plants' owners and reflects how undependable the state's electricity has become.
It is a move of dubious value, many experts said, given that the state lost control of power plants under deregulation.
Even the governor's office--which approved the inspections--and the state agencies involved agree that whether they are entitled to make such visits or order changes to plant operations is a legal gray area.
"They don't regulate us," said Tom Williams, spokesman for Duke Energy North America, which owns four large power plants, including one in Chula Vista that was visited by a state inspector Wednesday. "But we worked with him."
Inspectors were sent out Tuesday, when power plants that could generate enough electricity to meet a third of the state's demand were not running, according to the agency charged with balancing electricity supply and demand. Supplies got so tight Tuesday evening that Gov. Gray Davis turned off the state's official Christmas tree almost as soon as it was lit. On Wednesday, Sea World in San Diego announced that it would not turn on 2,000 lights strung from its landmark tower.
Power plant owners offered explanations for why their units were not running: overdue maintenance, air pollution rules, installation of pollution control equipment. But state regulators apparently were skeptical, suspecting that some plant owners might be withholding electricity from the market to boost prices.
The California Public Utilities Commission and the California Independent System Operator, the agency that oversees the power grid, sent a dozen inspectors throughout the state to ask questions and get copies of maintenance logs. The information will be given to the PUC, which will decide whether to make it public, said PUC energy division director Paul Clanon.
One PUC worker showed up at 9:30 p.m. Tuesday, unannounced, at the gate of Reliant Energy's power plant in Oxnard. He asked for proof that the company was making the mechanical repairs it reported, said Richard Wheatley, spokesman for the Houston-based company.
Wheatley said the inspector told plant workers that Gov. Davis is investigating whether power plant owners are holding back production to manipulate the market.
"This is an extraordinary situation," said Steve Maviglio, the governor's spokesman, "and we want to see if they're holding back, and if they're holding back maybe it's something we want to address."
Some industry experts scoffed at the notion of using such inspections to get cooperation from the private, profit-driven companies that bought power plants from state-regulated utilities when California launched deregulation in 1998.
The designers of the new market figured competition would drive down electricity prices. But the opposite has happened, and California consumers and utilities have paid billions of additional dollars for electricity this year.
Experts said the fundamental problem is that California hasn't built any major new power plants in the last 10 years, while demand for power has grown steadily. They said that shortage, plus flaws in the structure of the market, allow power plant owners to manipulate prices.
"We asked for it," said S. David Freeman, general manager of the Los Angeles Department of Water and Power, which is publicly owned, exempt from deregulation and enjoying abundant electricity supplies. "These people are not in the generating business--they're in the moneymaking business.
"They're generating green stuff. It's time to ask the question, 'Who is responsible for power supply in California today?' " Freeman said, "and the answer is: 'Nobody.' "
Freeman argues that California must reverse deregulation through public purchase of its transmission grid or by ordering utilities to build and run new power plants. Consumer activists have said they will take a ballot measure to voters in 2002 to undo deregulation if solutions to the state's electricity crisis are not found quickly.
Power plant owners, while justifying shutdowns on the grounds of maintenance and air pollution control, point out that there is little economic incentive to sell electricity in California this week. Earnings here are capped at $250 per megawatt-hour, while electricity is selling in the Pacific Northwest, where it has been unusually cold this week, for three times that.
What's more, they say, the most inefficient plants aren't worth running now that the price of natural gas--the main fuel burned to make electricity--has rocketed to levels nearly 16 times those of last year.
Charlotte-based Duke Energy owns power plants with a combined capacity to serve more than 3 million homes. On Wednesday, less than a third of that capacity was shut down for installation of pollution control equipment, Williams said.
Reliant Energy, which owns slightly more capacity than Duke, had shut down somewhat less than half of that capacity for repairs that had been put off all summer, said Wheatley. |
