Resetting the Energy Landscape After February’s Midcontinent Weather Event3 min read
During Constellation’s March Energy Market Intel Webinar, Constellation market analysts provided a detailed look at:
- moderating temperatures as we transition from winter to spring along with an early summer peek
- a snapshot of the recovering economy
- natural gas market fundamentals (including underground storage and production),
- and an update on the February weather event that impacted the middle third of the U.S.
Constellation’s chief meteorologist, Dave Ryan, outlined how the current variable pattern expected over the next couple of weeks will net out to above-average temperatures for much of the country except for the West/Southwest. A weak La Niña is expected to bring the familiar and mild West to East flow we saw during early winter to the spring months ahead.
While very early on in the forecast cycle, he then treated the audience to a special preview to the summer and impacts to cooling demand. Much of the talk centered around the current drought in the West/Southwest, which if it were to persist, could bring significant heat to those regions come early and mid-summer. Although few areas in the Eastern half of the country are severely dry, the theme is one to watch for the East as well. If the drought does in fact creep East, it could also facilitate a hot summer for this region. At this time, the only “safe” region from potential extreme/dry conditions looks to be the Pacific Northwest, which should see its typical cooler and wetter climate for June through August.
Storage and Production Update
The latest figures on natural gas production from the Energy Information Administration show a brisk rebound from February freeze-off curtailments due to the weather event. After averaging 87.76 Bcf/day in February, month-to-date estimates for March thus far have jumped back up to 91 Bcf/day – a promising sign for those hoping for a buying opportunity in the near future. While the production impact from the February cold blast proved to be brief, the effect on natural gas storage could linger into summer. Current inventories flipped from a surplus to historicals to a deficit with stocks currently 12.5% below last year and 7.3% below the 5-year average. This was thanks in large part to two of the largest consecutive draws seen in three years following the week of the Texas cold shot.
Texas Energy Crisis Update
The Commodities Management Group’s (CMG) Keith Poli provided a recap of the Winter Storm Uri events in ERCOT for February 14-20th and the fallout from the storm on Public Utility Commission of Texas (PUCT) decisions and proceedings. A critical decision that has generated a lot of post-storm debate was the decision by ERCOT to leave the Energy Emergency Alert level 3 (EEA 3) in place after 11:55 p.m. CST on Wednesday, February 17th, after ERCOT’s firm load shed direction had terminated. The result of this decision was that ERCOT continued to hold prices at the $9,000/MWh system-wide offer cap for an additional 32 hours until 9 a.m. CST on Friday, February 19th.
Subsequently, after the event ended, Potomac Economics, the Independent Market Monitor (IMM) for ERCOT, which is charged by the Legislature with overseeing the ERCOT market, made a recommendation that the PUCT direct ERCOT that the 32 hours of pricing at $9,000/MWh should be revised as well as ancillary services (i.e., generators who commit generation to help balance transmission) prices, which traded as much as $20,000/MWh for some services. The IMM suggested ERCOT revise ancillary service prices down to the $9,000/MWh price cap. The last week of February saw hearings underway in Austin as to revising prices. On March 5th, with two of the three original PUCT commissioners still on the commission, the PUCT failed to take action to revise prices for the 32 hours. As of March 16th, all PUCT commissioners have resigned including chairman D’Andrea although he will remain on the board until Gov. Abbott finds his replacement. The PUCT has stated that they do not have the authority to revise prices lower. Legislation was initiated in the Texas Senate on March 15, finding that the PUCT has the authority to order price correction and requiring the PUCT to direct ERCOT’s correction of the error that kept energy prices at $9,000/MWh and to correct the price of ancillary services, but this was not passed by the Texas House.
CMG also covered impact on natural gas market pricing with a discussion regarding record physical cash prices in the Midcontinent region and California. Constellation is reaching out on behalf of customers to local gas distribution companies (LDCs) and state utility commissions where appropriate, seeking waivers of penalty fees, for example.
We invite you to join us for our next Energy Market Intel Webinar where Constellation energy experts continue to offer detailed and timely updates related to the energy market, economy and weather, and much more each month. Register by visiting www.constellation.com/marketintelwebinar.