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High Utility Demand Now, But Watch Out for Fall

High Utility Demand Now, But Watch Out for Fall

Anyone who's been outside just about anywhere except the Northeast knows summer came on early this year and came on strong. Electric utilities that usually don't hit their demand peaks until July or August hit their high marks last month. And the heat likely won't be retreating in August. However, as the summer wears on and fall approaches, uncharacteristically high storage levels could put a damper on prices, traders said.

"Usually we don't see records until July or August," said Michel' Philipp, spokeswoman for Western Resources. "The industry right now is looking at some incredible activity because of the temperatures and humidity that we're experiencing nationwide, especially in the Midwest region. It's been really hot, really early." Western's KPL peaked July 6 at 2,190 MW, but the company's KGE hit its high mark June 29 at 1,985 MW. Similarly, Houston Lighting &amp Power reached its yearly peak in June instead of August last year and July the year before. Already, the Electric Reliability Council of Texas (ERCOT) has set records and near records many days this summer, pointed out one Midcontinent gas trader. Record power demand has been accompanied by reports of gas-fired generators burning record amounts of gas for this time of year.

Tucson Electric Power Co. (TEP) recently established about half a dozen new peak demand records in about as many days in its retail service area. A net hourly peak demand of 1,763 MW was reached during the hour ending 5 p.m. MST Wednesday. The record not only exceeded the previous record set Tuesday, but also exceeded the company's 1999 projected forecast of 1,752 MW of demand. The new record exceeded 1997's top demand of 1,659 MW by 6.3% and 1999's projected peak demand by 0.6%. With triple-digit temperatures and above-average humidity expected to continue, the company believes further record peak demands could be established this month - possibly this week. TEP said it has sufficient energy and capacity even with continued peak demand.

Chicago's Commonwealth Edison (ComEd) last week announced financial incentives to all customer segments to prompt energy conservation. The new initiatives are designed to help residential, small business, large commercial and industrial customers manage electricity usage during peak demand days this summer.

According to the Energy Information Administration (EIA), gas use by electric utilities is expected to rise to 3.09 Tcf next year from a projected 3 Tcf this year. In 1997, electric utilities used 2.97 Tcf. Looking at second quarter figures for each year, utilities used 0.72 Tcf in 1997, and gas usage is projected to jump to 0.80 Tcf for the second quarter of this year. In 1999, second quarter gas usage is projected to be 0.82 Tcf.

With more gas-fired generation being built to replace retired nuclear facilities, some have voiced concern for the gas supply picture. Not everyone, though. "I can't help but feel that we have more deliverability out there with new gas than people are reporting," the trader said. "There's no way we should be at the levels we're at with storage. The producing region's fuller than any other region on a percentage basis. I think some of that offshore production is coming on from the deep-water, and I don't think it's getting included [in supply totals]. I don't see how we should be this far ahead [with storage]."

With storage as high as it is, the trader said he is skeptical gas can remain at $2.00/Mcf or more this fall. Going into fall with a storage overhang and no hurricanes on the horizon would mean September and October could trade well below $2.00, he said.

Besides the weather, the high gas storage level is the strongest fundamental affecting prices now, said another trader. "I think we're going to continue to see [price] strength through the summer; however, with the storage levels as high as they are, come fall, September, October, perhaps, we're going to see - because of storage levels being so high - we're going to see a lot of gas needing to find a home, which I think is going to depress prices."

This trader said he and his colleagues are "fairly surprised" at how the market is remaining fairly strong. "And I think that's in large part due to the fundamentals. We're surprised it's as hot as it is. Normally, in a post-El Nino summer, you see the summer getting hotter, but not as early as it did."

Joe Fisher, Houston

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