FERC Enforcement Staff Presents "State of the Markets" Report

FERC Enforcement Staff Presents "State of the Markets" Report

At FERC’s April open meeting, staff from the Office of Enforcement (OE) presented its 2011 State of the Markets Report.  The report represents OE’s annual assessment of the natural gas, electric, and other energy markets, but does not necessarily reflect the views of FERC, its Chairman, or individual Commissioners According to OE, 2011 saw reduced natural gas and electricity prices, due to several key factors, including:

  1. the addition of approximately 2,100 miles of new gas pipeline capacity capable of moving 9.3 Bcf/d;
  2. the addition of significant new electric transmission capacity;
  3. increased reliance on gas-fired generation as an alternative to coal-fired generation; and
  4. improved integration of renewable generation, particularly with respect to wind resources.
Natural gas production reached an all-time record in 2011, OE reported, despite an overall decline in natural gas rig count.  Supply outpaced demand, resulting in record-high storage inventories going into the 2011-12 winter season, which proved to be the warmest in 60 years.  As a result of the significant reduction in natural gas prices, many new wells have been drilled but not completed; however, these wells can be completed quickly when prices increase, allowing gas production to come online quickly as market conditions warrant.  The report noted, however, that there is less market transparency as a result of the U.S. Court of Appeals for the Fifth Circuit’s decision to vacate FERC Order No. 720, thereby relieving major non-interstate pipelines of the requirement to post daily nominated receipts and deliveries on their systems.  According to OE, less information usually leads to greater market uncertainty, price volatility, and risk. Despite a warmer than normal summer, OE reported that electric power prices declined in most regions, with the notable exception of the Electric Reliability Council of Texas (ERCOT), where power prices were up by 40 percent due to a major summer heat wave.  Overall demand for electricity was down by approximately 1 percent, with little change in industrial, commercial, or residential sector demand.  The report highlighted the reduction in congestion in the PJM markets resulting from the placing into service of the TrAIL power line, as well increases in demand response participation in eastern regional transmission organizations.

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