A Year in Review for the West Region

In this blog, we will look at how the West Region fared this past year, and our outlook for 2017.

In 2016, the region addressed a major challenge in Southern California. 

Out west this year, customers faced a large challenge. There were ongoing restrictions on injection operations at the Aliso Canyon storage facility in Southern California in the aftermath of a leaking well that caused illnesses among many nearby residents and forced others out of their homes for extended periods of time. It took four months to contain the leak. 

As was reported in its early November progress report, Southern California Gas Company (SoCal Gas) has made comprehensive infrastructure, technology and safety upgrades. It has requested approval to resume injections of natural gas into the field through the 31 wells (out of the total 114 wells at the site) that have passed all the safety tests. That approval has not yet been granted as regulatory agencies – the Division of Oil, Gas and Geothermal Resources (DOGGR) and the California Public Utilities Commission (CPUC) – continue their review of the test data.

Moreover, by California law, resumption of injection operations cannot take place until there has been a public hearing where the test results are discussed with the public and they are allowed to present their views on whether the field should be allowed to resume operations or not. The public meeting has not yet been scheduled. We do expect it to be contentious as residents who live near the field are expected to strongly oppose any resumption of operations there. In fact, legal action to block any resumption of operations is expected, should regulators allow that. Therefore, it seems doubtful that there will be a resumption of injection operations this winter. 

SoCal Gas is allowed to withdraw what little natural gas remains in the field (10 Bcf) through the wells that have been deemed safe. But, this can only be done in emergency conditions, such as natural gas being needed for power generation to ensure the power grid does not suffer an outage, or for residential or business heating purposes, should there be an extreme cold snap this winter.

Even if some operations resume, they will be limited. As noted above, SoCal Gas has said that 31 wells have passed all safety tests and will be usable. The rest of the wells in the field have been taken out of service until further remediation can be achieved. SoCal Gas has one year to fix these wells or they will stay closed. 

Without Aliso Canyon, the potential for natural gas shortages, curtailment of load and price volatility remains.

Supporting customers through the challenge:

Constellation has been deeply involved on these issues in the efforts of stakeholder groups, SoCal Gas, the legislature and regulators. Most notably, a settlement  agreement among stakeholders and SoCal Gas has been approved by the CPUC. This provides for winter gas-balancing operating rules that will allow natural gas suppliers and their customers to better manage scheduling and imbalance positions to lower reliability and price risk.

One energy purchasing strategy to consider when managing gas supply is Minimized Volatile Pricing (MVP). This is a systematic and automated approach. It uses proprietary algorithm and dollar-cost averaging methods. Percentages of your load are purchased at regular intervals through an algorithmic approach. This is based on current and historical market data.

To learn more about your energy purchasing options, contact Constellation. 

Energy trends impacting the region in 2017.

Other than the potential for weather-driven basis risk this winter due to the absence of Aliso Canyon, we expect that forward gas and power prices will continue to follow the price shape of the NYMEX Henry Hub forward curve. Federal tax credit incentives for distributed solar installations were a key driver behind 3.9 GW of installed utility-scale solar capacity coming online in 2016, according to the U.S/ Energy Information Administration (EIA). This trend is likely to continue into 2017 and will impact the way gas-fired generation is dispatched in late afternoon hours, mainly in the summer months.

Energy pricing and readiness will also be subject to the state’s constant drought conditions. Although the state saw storms and rainfall in October, these drought conditions are expected to extend into 2017, especially for Southern California.

Other regional highlights:

On November 8, 2016, Nevada voters passed a ballot initiative that calls for opening the electricity market to competitive retail service. The ballot initiative must pass again in the next general election in 2018. If that happens, the Nevada PUC will then be responsible for designing and implementing the retail choice market. The ballot initiative passed by more than a 70 percent margin. It is likely that stakeholders and legislators may work toward developing new legislation in favor of retail choice, precluding the need to wait for another general election.

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