By Rich Heidorn Jr.

WASHINGTON — Federal regulators said Thursday they expect sufficient resources to meet peak electric demand this summer despite coal-fired retirements, a continued drought in the West and modest load growth driven by a rebound in industrial activity. Prices are expected to be moderate, based on forwards.

Staff of the Federal Energy Regulatory Commission gave a presentation at its Thursday meeting, shortly before the board of the North American Electric Reliability Corp. approved its summer reliability assessment.

NERC noted that the Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS) took effect in April 2015. “While this rule has contributed to retirement of fossil-fired generating units, the retirements have not caused the Planning Reserve Margin to fall below the NERC reference margin level,” the report said. “However, there is less resource capacity overall compared to previous summers to manage unforeseen challenges and severe conditions.”

The forecasts from FERC and NERC generally aligned with those from regions that have reported thus far. (See RTOs Prepared for Summer Peaks, but Reserve Margins Shrinking.)

Generating Capacity

Nationwide generating capacity has declined by about 3% since last summer, as retirements of coal-fired generation outweighed an increase of 2 GW of utility-scale solar and about 3.5 GW in wind generation, a 6% increase.

Fuel supplies should be plentiful as a result of recoveries in coal stockpiles and gas storage levels. FERC said coal stockpiles have been recovering since last summer but that a rise in natural gas prices could increase coal-fired generators’ output, creating the potential for supply problems in the Midwest.

The drought in California and the West, now in its fourth year, will reduce hydroelectric production, likely resulting in higher prices but no threat to reliability.

New York’s reserve margin has improved thanks to repowered generation capacity and lower forecast demand.

MISO’s projected reserve margin increased to 18% from 15% in 2014. NERC said MISO’s capacity resources are up by 4.5 GW “due to improved accounting for the reduction of contract path-limited resources in MISO South.”

Demand Response

Less demand response will be available in PJM, NYISO and ISO-NE. PJM expects 6,900 MW of DR, down by nearly 2,500 MW from a year ago, and less than half of the 14,800 MW that cleared in the Base Residual Auction in 2012, for the 2015/16 delivery year. “A substantial number of market participants traded away these positions in the RTO’s [incremental] auctions and through other transactions,” FERC said.

New York’s DR fell by 65 MW (5%) over last year while it dropped by 62 MW (9%) in New England. None of the three regions called on DR last summer.

The staff of the New York Public Service Commission issued a report Thursday predicting adequate supplies and moderate prices. Current wholesale prices are about 4.4 cents/kWh, compared to 6.6 cents/kWh a year ago, the PSC said.

Demand, Weather Forecasts

The Energy Information Administration has forecast a 2.9% increase in electric demand from last summer, which saw unusually mild weather.

The National Oceanic and Atmospheric Administration is forecasting warmer-than-normal temperatures in the West and Southeast and below-normal temperatures for parts of Texas and eastern New Mexico.

Only three hurricanes are forecasted, compared with the average of seven. “Generally speaking, hurricanes do not have the same level of impact on the U.S. energy markets as they did several years ago, due to the substantial shift in natural gas production from the Gulf of Mexico to onshore shale production,” FERC said.

Forward Prices

A 5.7% increase in natural gas production and a 71% increase in storage inventories versus last year caused a big drop in gas futures. The injection season began April 3 with 1.5 Tcf of natural gas in storage, up 79% from 2014 and only 4% below the five-year average.

NYMEX gas futures for June through August are averaging $2.89/MMBtu, a 40% drop from 2014. Peak power forward prices are down by an average of 24%, with a 34% drop for the ISO-NE internal hub.

The Algonquin Citygate near Boston showed the biggest drop among gas futures, recording a 46% reduction to $2.96/MMBtu. However, FERC said gas generators in ISO-NE could face challenges when Spectra Energy Partners begins maintenance and expansion of the Algonquin pipeline in late August.

In contrast, the commission said the rebuilt Susquehanna-Roseland 500-kV transmission line between Pennsylvania and New Jersey, which went into service May 11, should lower congestion in that region of PJM.

Market Changes for ISO-NE, CAISO

The commission also noted market developments since last summer.

ISO-NE is now allowing generators to submit up to 24 separate hourly offers in the next-day market and to update their offers during the operating day. Until the change in December, resources were limited to a single day-ahead offer and could not change their offers during the operating day. The RTO also will allow resources to submit negative offers as low as -$150/MWh to provide price signals to curtail generation when consumer demand is low.

The CAISO Energy Imbalance Market, which began in November, also will be entering its first summer test. The EIM enables balancing authorities in five Western states served by PacifiCorp to voluntarily take part in the imbalance energy portion of the ISO’s real-time market.

Meanwhile, SPP and MISO South will enter their second summer with full LMP markets.

New Focus for NERC

NERC said that although its assessment shows enough resources to meet summer demand, the transformation of the nation’s resource mix continues to present challenges. Natural gas now represents 40% the nation’s generation capacity.

“NERC continues to monitor key measures of essential reliability services to provide greater insight on how this trend is impacting reliability,” said John Moura, NERC director of reliability assessments.

In addition to continuing its efforts to ensure that the new generation mix provides adequate levels of frequency response, voltage control and inertia, NERC for the first time is considering operational risks from ongoing resource outages.

“The operational risk approach provides a much clearer picture of the actual capability of a given system within the bulk power system and its resilience against extreme weather and system conditions,” Moura said.

— William Opalka contributed to this article.