Webinar Analysts: A Record-Setting PJM Auction
During the September Constellation monthly Energy Market Intelligence Webinar, Constellation’s Commodities Management Group (CMG) provided comprehensive coverage of various significant factors affecting the energy landscape. These included a recap on this year’s summer weather, recent actions by the Federal Reserve, natural gas fundamentals and the record-setting PJM Base Residual Auction results.
Weather Report
Constellation’s Chief Meteorologist, David Ryan, discussed the summer weather patterns and provided insights into the second hottest summer on record. The summer began with the hottest June on record, with temperatures reaching over 100°F in many areas, including Washington, DC, and Chicago. The Southwest and Rockies experienced very strong heat, most recently in California. In the East, strong heat in June and July became more variable in August, with normal conditions in the Midwest.
Ryan also provided an early winter outlook, mentioning that the current conditions are very close to neutral, with a weak La Niña developing. He discussed the impacts of Hurricane Francine, which made landfall in central Louisiana and mentioned that the storm would likely cause some short-term damage with no long-lasting impacts.
All Things Economic
Chief Economist, Ed Fortunato, shared insights on the economy, focusing on interest rates, energy impacts and the Federal Reserve’s actions. Since the Webinar, the Federal Reserve cut interest rates by a half point in the meeting on September 18th. The Fed’s concern is more about the jobs market slowing down rather than inflation, which, while it has been coming down, has not reached the Fed’s target of 2%. The equities markets have been volatile, with speculations on the rate cuts driving swings in stock market pricing. The jobs market has been slowing as August reported a gain of 142,000 jobs vs. an average gain of 202,000 the past 12 months. The weekly indicator shows a consistent range of job losses, and the Fed is concerned about this trend.
The discussion also highlighted the impact of energy production and consumption on the economy. U.S. oil production has been rising, reaching record high of 13.5 million barrels/day which is also leading to more “associated” natural gas being extracted in the Permian basin of west Texas and New Mexico. Meanwhile on the demand side for oil, China, the world’s largest importer of oil, has been experiencing a continued economic slowdown and this has led to both lower crude oil prices and gasoline prices.
Natural Gas Fundamentals
Constellation’s energy market experts analyzed the factors influencing natural gas prices. Natural gas production is holding in the 101-102 Bcf/d range before some shut ins of production from Hurricane Francine reduced it to ~100 Bcf/d. Appalachian producers such as Chesapeake Energy have signaled they intend to make production cuts but have not implemented cuts as of yet. The gas rig count is down 20 percent from January, currently at 94 rigs and this has traditionally served as a leading indicator of where production might be headed. Yet producers are increasing efficient so they can produce more gas with fewer rigs over time.
There is uncertainty about whether producers will cut more into Q4 but winter weather forecasts and weather in November and December could ultimately drive those actions. Despite a string of below-average injections, forecasts for end-of-season storage inventory are largely unchanged since July, between 3.9-4.0 Tcf. The injection season is winding down, and a major deviation from the forecast is unlikely. Across the pond, European storage is nearly full at 93%, which will keep global LNG prices in check to start winter. Any significant sustained cold weather would draw on storage and call on U.S. LNG to resupply via pricing action at the European Title Transfer Facility (TTF) location in the Netherlands, which serves as a benchmark for LNG.
By the end of 2028, the Energy Information Administration (EIA) estimates LNG export capacity will grow by 0.8 Bcf/d in Mexico, 2.5 Bcf/d in Canada, and 8.2 Bcf/d in the U.S. with the delay of Golden Pass trains 2 and 3.
2025/26 PJM Base Residual Auction
The team transitioned to cover one of the biggest developments in power markets this year, the unexpected results of the 2025/2026 PJM Base Residual Auction which saw the highest ever price for system RTO capacity at $269.92/MW-Day. The PJM Auction is an annual auction that secures commitments from electricity suppliers to provide capacity to meet the forecasted demand for electricity in the PJM region. The auction ensures that there is enough electricity supply to meet the peak demand and maintain grid reliability. For the 2025/26 years, the RTO price of $269/MW-Day was driven by a decrease in supply offers of 6.6 GW, mainly due to generator retirements, an increase in the peak summer load of 3.3GW, and an increase of the Installed Reserve Margin (IRM) from 14.7% to 17.8%. Additionally, the Federal Energy Regulatory Commission (FERC) approved Critical Issue Fast Path (CIFP) changes to better reflect risks from extreme weather and introduced new resource accreditation metrics for a more accurate picture of plant performance during high-stress times.
An overall tightening of the electricity supply and demand balance in PJM, along with FERC-approved market rules has caused a spike in RTO capacity clearing prices which will significantly increase the price a customer will have to pay for this cost component.
Market Trends and Temperature
The team concluded the webinar by looking at forward power charts, the “Market Temperature” and other factors affecting the energy market.
We invite you to join us for our next Energy Market Intel Webinar on Wednesday, October 16 at 2 pm ET. Constellation energy experts will offer detailed and timely updates on factors affecting energy landscape such as weather, natural gas storage and production, and domestic and global economic conditions. Register by visiting www.constellation.com/marketintelwebinar.
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