A formidable jump in the price of natural gas in California ISO territory in the first quarter drove up the cost to serve wholesale load by 43 percent compared with the first quarter last year, CAISO’s market monitor said in a new report.
The total estimated wholesale cost of serving load in the first quarter was about $2.7 billion, or $55/MWh, CAISO’s Department of Market Monitoring said in its , released June 28. The increase was primarily driven by a 73 percent climb in the price of gas, it said.
The first-quarter wholesale energy cost would actually have been 7 percent lower than last year when normalized for gas prices and greenhouse gas compliance, DMM said.
“Despite increased renewable and hydroelectric production, higher gas costs drove average energy prices in the ISO’s day-ahead, 15-minute and five-minute markets significantly higher in comparison to the same quarter in 2018,” DMM said.
Average day-ahead prices increased by about 50 percent or $17/MWh; 15-minute prices by about 45 percent or $15/MWh; and five-minute market prices by 35 percent or $13/MWh compared with the same quarter in 2018.
The high gas and energy prices have been going on for some time. Last year, the cost to serve load in the ISO grew by 25 percent above 2017, with gas prices climbing 24 percent year over year, DMM said in its full-year 2018 report.
February was a key month in this year’s quarter, with heavy heating demand and supply constraints that caused Southern California Gas Co. to withdraw gas from Aliso Canyon.
Prices at the SoCal CityGate gas hub were particularly high in February, averaging $10.44/MMBtu compared with $4.80/MMBtu in January and $8.15/MMBtu in December 2018. Increased regional demand also drove up prices, with a large number of gas resources in the south often setting systemwide prices. A low operational flow order (OFO) for most of February was another factor pushing up gas prices at SoCal CityGate.
Aliso Canyon is the subject of a new investigation at the California PUC, which last week also launched an investigation into SoCal Gas over pipeline explosions that have led to extended outages.
Colder weather pushing up demand also raised PG&E CityGate prices in February, along with regional supply constraints and OFOs.
In the Pacific Northwest, volatility at the Sumas hub since October 2018, cold weather and system outages drove gas prices to record highs. The average Northwest Sumas price in the first quarter was $10.89 compared with $2.31 in the first quarter last year (CU No. 1892 ).
Permian Basin gas prices followed the opposite direction as a force majeure on an El Paso Natural Gas pipeline due to a potential leak decreased takeaway capacity and pushed down prices.
Daily energy prices at the Mid-Columbia hub were lower than prices in the ISO on about 60 percent of days in the quarter, and at the Palo Verde trading hub on about 97 percent of days in the quarter. The DMM’s analysis compared day-ahead weighted average prices across the three largest load-aggregation points in the ISO—Pacific Gas & Electric, Southern California Edison and San Diego Gas and Electric—and average peak energy prices at the outside hubs. Average prices in the ISO and at trade hubs were calculated during peak hours for all days except Sundays and holidays.
“Prices in California tend to be higher relative to bilateral prices at trading hubs elsewhere in the West, reflecting the greenhouse gas compliance cost associated with delivering energy into the state and the cost of congestion associated with limited transfer capacity with other balancing authority areas,” DMM said.
The report also showed the increased impact of the heavy growth in renewables in CAISO. During peak solar hours the ISO became a net exporter on average over the entire quarter, as imports fell and exports increased in these hours relative to prior quarters.
The DMM has been campaigning against the structure of CAISO’s congestion revenue rights auction, which led to development of a package of reforms that FERC initially approved in September 2018. For this reason, CRR auction revenues were $1.5 million less than payments made to non-load-serving entities purchasing these rights, compared with a difference of $43 million in the first quarter of 2018.
The total estimated wholesale cost to serve load in the wider Western EIM, excluding CAISO, was about $6 million or 10 cents/MWh in the first quarter, down almost 75 percent from about $16 million or 38 cents/MWh in the same quarter last year. The largest share came from real-time energy costs, which decreased by about 14 percent from the same quarter last year, while imbalance offset costs—which generally reduce costs—increased by more than 90 percent quarter over quarter, according to the DMM.