Rising

Prices crept mildly higher in most cases Tuesday, continuing tofeed on an early preview of winter in much of the East. A greatmajority of points ranged from flat to about a nickel higher.Exceptions included downturns for Northwest-domestic, SouthernCalifornia border and a few Northeast citygates, along with aPG&E citygate gain of about 15 cents.

Finding Friday’s customer-specific OFO (see Daily GPI, Sept. 22) insufficient to keep itsprojected linepack from rising well above target levels over theweekend, Pacific Gas & Electric expanded it to a systemwide Stage3 high-linepack OFO for Saturday. The order carried $5/Dth penaltiesfor positive daily imbalances exceeding a 2% tolerance.

Continued heat problems in the West had Rockies and SouthernCalifornia border prices rising Wednesday, while the rest of themarket leveled off with mostly flat numbers. A bullish storagereport had sources predicting across-the-board upticks for today.

By the end of last week with rising temperatures, peak demandand political heat, San Diego Gas and Electric Co. and theCalifornia Power Exchange (Cal-PX) worked out a proposal for theutility to purchase fixed price electricity through forward marketsalready in place at the Cal-PX over a longer term five- tonine-month period into next spring. SDG&E has asked stateregulators to okay the purchases at their Aug. 3 meeting.

Cash quotes continued to rise Wednesday in both swing deals fortoday and in what little bit of bidweek business remained to bedone. However, doubt was growing about how much longer theunprecedented recent price strength can be maintained after futuresreacted negatively to a storage report for the first time in morethan a month.

Better get used to high gas prices, say Lehman Brothers andSalomon Smith Barney, because $3.50/MMBtu is likely to be the normfor a while. In a research note, Robert Morris, Salomon SmithBarney’s energy analyst, said he expects prices to average $3.50during the third quarter and $3.75 during the fourth quarter ofthis year. Meanwhile, Richard Gross, senior vice president ofLehman Brothers Energy Research, said he expects Henry Hub priceswill average $3.30 this year and $3.35 in 2001.

Friday’s mild firmness wasn’t terribly impressive following thedazzling display of cash price might the day before, but it didmake last week five-for-five on ever-higher quotes each day.

Although the Northeast power grid remained under heavy stressTuesday from an intense heat wave, hourly spot prices for electricitywere backing off from the peaks of $6,000/MWh hit Monday afternoon inthe ISO New England service area (see related story in this issue). Although gasprices continued to advance Tuesday, a large aggregator felt confidentin predicting they will be following power quotes lower today.

Rising temperatures again will mean growing tightness in powermarkets across the country this summer. While industry players havemore experience dealing with shortages and constraints, a trulyefficient market with ample power supply depends upon regulators,according to industry executives.