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Power Play: Energy Market Developments Tri-State Member Services Meeting October 7, 2010 Eric H. Larson VP - ACES Power Marketing.

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Presentation on theme: "Power Play: Energy Market Developments Tri-State Member Services Meeting October 7, 2010 Eric H. Larson VP - ACES Power Marketing."— Presentation transcript:

1 Power Play: Energy Market Developments Tri-State Member Services Meeting October 7, 2010 Eric H. Larson VP - ACES Power Marketing

2 Topics Energy Demand Electricity Generation Power Prices Fuel Prices Regulation of Energy Price Hedging Natural Gas Supply Developments Environmental Issues 2

3 Energy Demand 2008 to 2009: Recession: 2009 electric energy output Down 3.7% vs. 2008 Retail Sales of Electricity Down 6.5% July 2009 vs. July 2008 2009 to 2010: Retail Sales Up 9.5% July 2010 vs. July 2009 (mostly weather – hotter) Industrial Retail Sales Up 9.8% Over Same Period (maybe economy?) Electric Power Flash. EIA. 20 Sept. 2010. 3

4 Electricity Generation Electric Power Flash. EIA. 20 Sept. 2010. 4 Total generation up 9.2% July 2010 Coal up 12.4% Natural Gas up 11.4%

5 Electricity Generation: Fuel Sources Electric Power Flash. EIA. 20 Sept. 2010. 5

6 Power Prices: Near-term History (Spot) $32.50 $31.28 $47.25 $47.50 6

7 Power Prices: Forward Markets $44.13 $50.78 $53.81 $53.36 7

8 Fuel Prices: Crude Oil Spot $145 $76 8

9 Fuel Prices: Crude Oil Forward $89 9

10 Fuel Prices: Coal Spot $145 $63.83 10

11 Fuel Prices: Coal Forward $81.10 11

12 U.S. Coal Stocks Coal stocks are falling after rising in the shoulder months due to increased cooling demand and coal production declines. Electric Power Flash. EIA. 20 Sept. 2010. 12

13 Fuel Prices: Natural Gas Spot $15.38 $3.96 13

14 Fuel Prices: Natural Gas Forward $7.62 $5.93 14

15 Regulation of Energy Price Hedging: Dodd-Frank is Not Just About Banks Devil in the details (Rule Making underway) Clearing forced, but with end user exemptions Margining of transactions (put up $ during deal) Reporting requirements increase Transaction costs increase Transparency of pricing probably improves Banks need to separate proprietary commodity trading 15

16 Natural Gas Supply: Storage Weekly Natural Gas Storage Report. EIA. 24 Sept. 2010. 16 Still near the high end of recent inventory ranges

17 Natural Gas Supply: Rigs Total Rig Count Up 35% From Beginning of 2010 Horizontal Rigs Make Up 55.3% vs. 25% in Jan 2008 Current and historical data. Baker Hughes. 24 Sept. 2010. 17

18 Natural Gas Supply: LNG Imports U.S. Natural Gas Imports. EIA. 30 Aug. 2010. Liquefied Natural Gas = Foreign Gas Imports 18

19 Natural Gas Supply: Shale 19

20 Shale 20

21 Natural Gas Supply: New Locations 21

22 Environmental Issues: New Climate Change Legislation (?) 22

23 Environmental Issues: Re-Regulation of Existing Generation 23

24 Environmental Issues: Tailoring Rule EPA released Tailoring Rule on May 13 –Carbon or Green House Gases (GHGs) will be regulated from generators based on the Clean Air Act –Generators will be required to Use Best Available Control Technology (BACT - definition to-be-done) 24

25 Environmental Issues: Transport Rule EPA released a proposed Transport Rule to replace CAIR on July 6 for comment period –Would require 31 Eastern States and D.C. to Cut Power Plant Emissions of SO 2 and NO x –Faster and larger cuts in SO 2 and NO x than under CAIR –Rule in 2011, with reductions to take effect in 2012 –Impacts trading of Emissions Allowances Year ago: SO 2 = $70 NO x = $1000 CAIR rule challenge: SO 2 = $3 NO x = $250 New rule would limit allowance trading 25

26 Environmental Issues: Bottom Line for Coal Tailoring Rule: Coal generation higher capital costs for BACT Ash: Hazardous waste (?) regulation could be expensive Mercury: Rule expected in 2010 or 2011 to force most efficient technology for removal Transport Rule: Many smaller and older coal plants could retire to avoid uneconomic retrofits (some estimates near 50GW) 26

27 Environmental Issues: Bottom Line for Natural Gas 27

28 Environmental Issues: Bottom Line for Natural Gas 28

29 Environmental Issues: Renewable Portfolio Standards 29 29 states with standards, 7 states with goals In-state and regional generation requirements State rule change and ambiguity –California at 33% by 2020 (Legislature votes no but CARB adopts 9/23 ??) –Delaware muni and co-op exemption changed –Missouri 15% by 2021 (sourcing out of state?) –Mass considering GHG limit on biomass –New Jersey special offshore wind provisions National RES: Bingaman-Brownback introduce another bipartisan Senate bill September 21 for 15% standard by 2021. Graham bill 20% including clean coal, nuclear.

30 EPA/Legislative update 30

31 Market Summary Electric demand rebounded somewhat this summer Coal and gas generation use up this year so far Power prices and volatility are lower Fuel prices driving power are lower although not oil Financial Regulation will impact energy hedging Natural Gas has entered a new era of shale supply Environmental regulations continue to challenge coal 31


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