Anyone who’s been outside just about anywhere except theNortheast knows summer came on early this year and came on strong.Electric utilities that usually don’t hit their demand peaks untilJuly or August hit their high marks last month. And the heat likelywon’t be retreating in August. However, as the summer wears on andfall approaches, uncharacteristically high storage levels could puta damper on prices, traders said.

“Usually we don’t see records until July or August,” saidMichel’ Philipp, spokeswoman for Western Resources. “The industryright now is looking at some incredible activity because of thetemperatures and humidity that we’re experiencing nationwide,especially in the Midwest region. It’s been really hot, reallyearly.” Western’s KPL peaked July 6 at 2,190 MW, but the company’sKGE hit its high mark June 29 at 1,985 MW. Similarly, HoustonLighting &amp Power reached its yearly peak in June instead ofAugust last year and July the year before. Already, the ElectricReliability Council of Texas (ERCOT) has set records and nearrecords many days this summer, pointed out one Midcontinent gastrader. Record power demand has been accompanied by reports ofgas-fired generators burning record amounts of gas for this time ofyear.

Tucson Electric Power Co. (TEP) recently established about halfa dozen new peak demand records in about as many days in its retailservice area. A net hourly peak demand of 1,763 MW was reachedduring the hour ending 5 p.m. MST Wednesday. The record not onlyexceeded the previous record set Tuesday, but also exceeded thecompany’s 1999 projected forecast of 1,752 MW of demand. The newrecord exceeded 1997’s top demand of 1,659 MW by 6.3% and 1999’sprojected peak demand by 0.6%. With triple-digit temperatures andabove-average humidity expected to continue, the company believesfurther record peak demands could be established this month -possibly this week. TEP said it has sufficient energy and capacityeven with continued peak demand.

Chicago’s Commonwealth Edison (ComEd) last week announcedfinancial incentives to all customer segments to prompt energyconservation. The new initiatives are designed to help residential,small business, large commercial and industrial customers manageelectricity usage during peak demand days this summer.

According to the Energy Information Administration (EIA), gasuse by electric utilities is expected to rise to 3.09 Tcf next yearfrom a projected 3 Tcf this year. In 1997, electric utilities used2.97 Tcf. Looking at second quarter figures for each year,utilities used 0.72 Tcf in 1997, and gas usage is projected to jumpto 0.80 Tcf for the second quarter of this year. In 1999, secondquarter gas usage is projected to be 0.82 Tcf.

With more gas-fired generation being built to replace retirednuclear facilities, some have voiced concern for the gas supplypicture. Not everyone, though. “I can’t help but feel that we havemore deliverability out there with new gas than people arereporting,” the trader said. “There’s no way we should be at thelevels we’re at with storage. The producing region’s fuller thanany other region on a percentage basis. I think some of thatoffshore production is coming on from the deep-water, and I don’tthink it’s getting included [in supply totals]. I don’t see how weshould be this far ahead [with storage].”

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

Besides the weather, the high gas storage level is the strongestfundamental affecting prices now, said another trader. “I thinkwe’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 ofstorage levels being so high – we’re going to see a lot of gasneeding to find a home, which I think is going to depress prices.”

This trader said he and his colleagues are “fairly surprised” athow the market is remaining fairly strong. “And I think that’s inlarge part due to the fundamentals. We’re surprised it’s as hot asit is. Normally, in a post-El Nino summer, you see the summergetting hotter, but not as early as it did.”

Joe Fisher, Houston

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