insightful media article on california power prices mark golden is an excellent reporter covering the power scene .
our takeaways :
* power prices are declining in california as the " destruction of demand "
effect of higher retail power prices kicks in .
* the long - term power contracts signed by the various power producers and
energy merchants are looking like sweetheart deals for them , as evidence of
price weakness ( from a base of extremely high prices ) is beginning to
develop .
* the movement in prices in california is reflective of the message in our
power curve 4 report , where we show that forward prices are peaking this
summer . year / year power price comparisons are now projected to be flat
4 q : 01 , and declining afterwards .
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
power points : great news ! long - term contracts jeopardized
by mark golden
a dow jones newswires column
new york ( dow jones ) - - those looking for even the slightest bit of good
news
for the state of california can find it in friday ' s san jose mercury news .
" california is in danger of losing more than 40 % of the power it has lined
up in
long - term contracts , " says the lead of a major article , because republicans
in
the state legislature didn ' t back the $ 12 . 5 billion bond deal last week .
getting out of most of those contracts would be the best thing to happen
to
california in a long time .
since the state went on its long - term buying binge , forward prices for
power
in the western u . s . have been falling steadily . gov . gray davis announced
$ 43
billion in purchases lasting up to 20 years on march 5 . contracts for summer
power at palo verde , ariz . , a key western trading hub that feeds a lot of
power
into california , have fallen to $ 390 a megawatt - hour from a high of $ 600 / mwh
in
late march . further out , power for 2004 - 2006 at mid - columbia river , a key
trading hub north of california , has fallen from $ 58 / mwh in february to
$ 49 / mwh
today .
companies like calpine corp . ( cpn ) and dynegy ( dyn ) that took advantage of
the
state ' s buying binge are looking pretty fat and happy . in fact , they have
affectionately started calling the governor gravy days . enron corp . ( ene ) ,
which
has been selling aggressively for two months , according to traders , is
looking
like a genius as usual . generators that held out , like reliant energy ( rei )
and
duke energy ( duk ) , may be sorry that they did .
it ' s been a long time since those long on western power have felt serious
pain
in the markets , but that time has come . power generators may not make as
much
profit this summer as last , and power traders that have taken long
speculative
positions may liquidate supplies for far less than they bought them . as was
seen
in the eastern u . s . power markets last summer , long positions can turn out
just
as painful as short positions .
for california , the good news is that maybe spot purchasing costs this
summer
won ' t be as bad as once expected . the bad news is that the state government
is
by far the biggest " long " in the bearish forward market . it ' s safe to say
that
the $ 43 billion in contracts signed in march have declined in value by 15 % ,
or
$ 6 . 5 billion . that ' s almost as big of a financial disaster going forward as
everything that has gone on since last summer until now .
granted , this is a sort of damned - if - you - do - damned - if - you - don ' t situation .
barring the utilities from the forward market during the first three years
of
deregulation was one of the most expensive public policy mistakes in u . s .
history . california should do some forward purchasing now , and it ' s such a
behemoth that it will move the market up when it does so . and , when it gets
done
buying , prices will come down simply because it stopped .
but that ' s a footnote to the mismanagement of the financial side of the
energy
crisis . early this year , when the state started down the path of
mega - purchasing , there was no shortage of advice not to do so . long - term
prices
were embedded with too much of today ' s supply - demand imbalance . the state
would
have been much better off dealing with the imbalance first - since it would
have
to do that anyway - and gradually securing forward power as declining prices
reflected the improving situation .
since then , the state has done a great job of crushing demand . electric
usage
is already down 9 % from where it was expected to be thanks to a conservation
efforts and a slowing economy , and people haven ' t even seen their 30 % higher
bills yet . similar reduction has been seen in power consumption in other
western
states and in natural gas usage nationally . this is likely what has been
behind
much of the downturn in forward power prices in the west .
this column started with a false " good news " lead . it would be great for
the
state if , after the state ' s credit rating sinks further , sellers exercised
their
option to tear up the five - and ten - year contracts . but they won ' t do that .
the
prices are too good from the sellers ' perspective . calpine , which has signed
three such contracts for the state , said immediately that it has no
intention of
reneging on its agreements . and gary ackerman , director of the sellers '
association , told the mercury news that he didn ' t expect power companies in
general to back out of the deals .
but there may be some real good news for california . the davis
administration
hired dozens of people that have little or no experience in energy trading
to
purchase billions of dollars of power . perhaps they are quick learners . this
week presented an excellent opportunity for the state to pick up what it
needs -
summer power for this year only - on sale . low prices in the daily market
monday
and tuesday drove the summer contract prices down to $ 325 / mwh , which is
cheap by
recent standards . the contract price moved up to $ 390 / mwh , but the state
took
advantage of the opportunity while the window was open .
" the week ' s condition in the market place helped . we were able to procure
some
energy for june through september , " said state spokesman oscar hidalgo .
and , hey , there were no blackouts this week .
- by mark golden , dow jones newswires ; 201 - 938 - 4604 ;
mark . golden @ dowjones . com
( end ) dow jones newswires 18 - 05 - 01
1952 gmt ( ap - dj - 05 - 18 - 01 1952 gmt )
raymond c . niles
power / natural gas research
salomon smith barney
( 212 ) 816 - 2807
ray . niles @ ssmb . com
s
insightful media article on california power prices
mark golden is an excellent reporter covering the power scene .
our takeaways :
* power prices are declining in california as the " destruction of demand "
effect of higher retail power prices kicks in .
* the long - term power contracts signed by the various power producers and
energy merchants are looking like sweetheart deals for them , as evidence of
price weakness ( from a base of extremely high prices ) is beginning to
develop .
* the movement in prices in california is reflective of the message in our
power curve 4 report , where we show that forward prices are peaking this
summer . year / year power price comparisons are now projected to be flat
4 q : 01 , and declining afterwards .
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
power points : great news ! long - term contracts jeopardized
by mark golden
a dow jones newswires column
new york ( dow jones ) - - those looking for even the slightest bit of good
news
for the state of california can find it in friday ' s san jose mercury news .
" california is in danger of losing more than 40 % of the power it has lined
up in
long - term contracts , " says the lead of a major article , because republicans
in
the state legislature didn ' t back the $ 12 . 5 billion bond deal last week .
getting out of most of those contracts would be the best thing to happen
to
california in a long time .
since the state went on its long - term buying binge , forward prices for
power
in the western u . s . have been falling steadily . gov . gray davis announced
$ 43
billion in purchases lasting up to 20 years on march 5 . contracts for summer
power at palo verde , ariz . , a key western trading hub that feeds a lot of
power
into california , have fallen to $ 390 a megawatt - hour from a high of $ 600 / mwh
in
late march . further out , power for 2004 - 2006 at mid - columbia river , a key
trading hub north of california , has fallen from $ 58 / mwh in february to
$ 49 / mwh
today .
companies like calpine corp . ( cpn ) and dynegy ( dyn ) that took advantage of
the
state ' s buying binge are looking pretty fat and happy . in fact , they have
affectionately started calling the governor gravy days . enron corp . ( ene ) ,
which
has been selling aggressively for two months , according to traders , is
looking
like a genius as usual . generators that held out , like reliant energy ( rei )
and
duke energy ( duk ) , may be sorry that they did .
it ' s been a long time since those long on western power have felt serious
pain
in the markets , but that time has come . power generators may not make as
much
profit this summer as last , and power traders that have taken long
speculative
positions may liquidate supplies for far less than they bought them . as was
seen
in the eastern u . s . power markets last summer , long positions can turn out
just
as painful as short positions .
for california , the good news is that maybe spot purchasing costs this
summer
won ' t be as bad as once expected . the bad news is that the state government
is
by far the biggest " long " in the bearish forward market . it ' s safe to say
that
the $ 43 billion in contracts signed in march have declined in value by 15 % ,
or
$ 6 . 5 billion . that ' s almost as big of a financial disaster going forward as
everything that has gone on since last summer until now .
granted , this is a sort of damned - if - you - do - damned - if - you - don ' t situation .
barring the utilities from the forward market during the first three years
of
deregulation was one of the most expensive public policy mistakes in u . s .
history . california should do some forward purchasing now , and it ' s such a
behemoth that it will move the market up when it does so . and , when it gets
done
buying , prices will come down simply because it stopped .
but that ' s a footnote to the mismanagement of the financial side of the
energy
crisis . early this year , when the state started down the path of
mega - purchasing , there was no shortage of advice not to do so . long - term
prices
were embedded with too much of today ' s supply - demand imbalance . the state
would
have been much better off dealing with the imbalance first - since it would
have
to do that anyway - and gradually securing forward power as declining prices
reflected the improving situation .
since then , the state has done a great job of crushing demand . electric
usage
is already down 9 % from where it was expected to be thanks to a conservation
efforts and a slowing economy , and people haven ' t even seen their 30 % higher
bills yet . similar reduction has been seen in power consumption in other
western
states and in natural gas usage nationally . this is likely what has been
behind
much of the downturn in forward power prices in the west .
this column started with a false " good news " lead . it would be great for
the
state if , after the state ' s credit rating sinks further , sellers exercised
their
option to tear up the five - and ten - year contracts . but they won ' t do that .
the
prices are too good from the sellers ' perspective . calpine , which has signed
three such contracts for the state , said immediately that it has no
intention of
reneging on its agreements . and gary ackerman , director of the sellers '
association , told the mercury news that he didn ' t expect power companies in
general to back out of the deals .
but there may be some real good news for california . the davis
administration
hired dozens of people that have little or no experience in energy trading
to
purchase billions of dollars of power . perhaps they are quick learners . this
week presented an excellent opportunity for the state to pick up what it
needs -
summer power for this year only - on sale . low prices in the daily market
monday
and tuesday drove the summer contract prices down to $ 325 / mwh , which is
cheap by
recent standards . the contract price moved up to $ 390 / mwh , but the state
took
advantage of the opportunity while the window was open .
" the week ' s condition in the market place helped . we were able to procure
some
energy for june through september , " said state spokesman oscar hidalgo .
and , hey , there were no blackouts this week .
- by mark golden , dow jones newswires ; 201 - 938 - 4604 ;
mark . golden @ dowjones . com
( end ) dow jones newswires 18 - 05 - 01
1952 gmt ( ap - dj - 05 - 18 - 01 1952 gmt )
raymond c . niles
power / natural gas research
salomon smith barney
( 212 ) 816 - 2807
ray . niles @ ssmb . com
s