California’s Drought, Aliso Canyon And The Impact on Energy Prices

As some of its largest reservoirs have recovered and parts of California have lifted restrictions over water usage, many are wondering whether this means the drought is over. 

Unfortunately, drought conditions persist in much of the southern part of the state, as the map below shows.

The drought continues to affect an estimated 33.7 million people. More than 63 percent of the state is experiencing extreme or exceptional drought conditions. 

While El Niño weather patterns played a pivotal role in delivering moisture to the drought regions in 2015, cooler ocean temperature patterns from La Niña, El Niño’s polar opposite, is keeping the rain away. 

Here’s a look at what’s to come and how it could impact energy prices. 

Drought relief is important because the presence of dry, hot ground reduces the effects of soil moisture evaporation. This, in turn, can result in higher daily temperatures or even the prolonging of a heat wave. 

The presence of higher temperatures ultimately affects peak air conditioning cooling load—which is a key driver of gas fired generation demand.

What This Means For Your Energy Purchasing Strategy

Despite some drought relief this spring for parts of northern California, the state overall remains in a multi-year drought. This is likely to continue into 2017. The drought and continued restriction of gas injections into Southern California Gas Company’s (SoCal) Aliso Canyon storage facility remain two of the most significant bullish drivers. As we near the end of October and if no injections are allowed into Aliso Canyon, the possibility of cuts to load this winter could increase. Along with the possibility of the drought continuing into 2017, it could lift forward gas and power prices.

Constellation offers a variety of energy purchasing strategies, including:

• Point-in-time pricing – The ability to lock in gas and power prices or ask Constellation to watch the market for a target price.
• Weighted average cost of gas/power – Customers pay the spot market price.
• Minimized Volatile Pricing (MVP) & (MVPe) – Customers can automatically and systematically hedge portions of their gas volume over time through established targets, similar to dollar-cost averaging.

To learn more about your energy purchasing options, contact us today.