Power prices sliding down, but no cuts for retail consumers yet

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Spot-market prices for both natural gas and electricity are falling, bringing relief to West Coast energy woes.

It's likely a temporary drop because a heat wave could spike wholesale prices again. And power watchers say only substantially increased supply or sustained reductions in demand will lower and stabilize prices for the long haul.

But while prices remain volatile, the slide since last month is considered remarkable. And the news could get better: The Federal Energy Regulatory Commission is expected to extend limited price caps on wholesale electricity prices to Northwest markets next week, sources close to the commission said yesterday. Current price caps announced in April apply only to California markets in emergency situations.

Peak demand prices for electricity on the Mid-Columbia wholesale market - where Northwest utilities buy power - slid below $100 a megawatt-hour June 6 for the first time this year. At times this month they have dipped as low as $36.80.

That's a far cry from the $500 per megawatt-hour some expected for this time of year or the up to $750 per megawatt-hour paid in December.

Prices for natural gas are also tumbling, hitting $3.46 per million British thermal units for gas traded at the hub at Sumas, Whatcom County, yesterday, down from an unprecedented high of $14.20 in January.

The drop in price this spring has been precipitous, with prices falling 23.4 percent from last month to this month, according to Kelley Doolan, natural-gas market specialist for Platts, a division of McGraw-Hill.

Experts cited a range of factors for the wholesale-price drops:

** Weather is the biggest single reason, as well as the largest wild card in the West Coast energy picture. Unusually cool, wet weather has prevailed in recent weeks throughout the West, cutting the usual demand for air conditioning.

** Decline in demand as a result of conservation. Power consumption is down 6.5 percent in California for the three months ending in May compared with the similar period a year ago, adjusted for differences in the weather, according to the California Energy Commission.

In Washington state, energy experts report a 5 percent reduction in use so far this year. "What we are doing is working," said Ralph Cavanaugh, Northwest energy-program director for the Natural Resources Defense Council, an environmental group.

** Decrease in demand by industrial users. Power guzzlers, such as aluminum companies, have unplugged, reducing demand on the grid in the Pacific Northwest.

** Increase in supply. California power plants shut down for spring maintenance in April and May are now back on line for the summer. That put about 15,000 megawatts of generating capacity back on the grid. New power plants have also fired up, including one in Oregon and another in Idaho.

Spring runoff has also added water to Northwest rivers, boosting supply for hydroelectric generation.

Relatively speaking, though, wholesale prices for electricity and natural gas are high: gas costs about twice what it did a year and a half ago, and so does electricity. "We are out of the stratosphere, but we haven't landed," said Jim Lazar, an independent energy consultant based in Olympia.

And consumers have yet to see any cut in retail rates.

Gas prices statewide went up by 50 percent this year over last for the average residential customer in response to the jump in wholesale prices.

Electric utilities around the region also raised rates and are forecasting rate increases, not decreases.

While wholesale electricity prices could indeed spike when the water runs low and the temperatures rise, some experts see longer-term relief in natural-gas prices.

Cool weather - which has reduced the demand for power, including gas-fired power generation - has allowed suppliers to put natural gas into storage at record rates.

That means storage could be adequate for the coming winter, Doolan said. New supplies should also be available in time for the coming heating season because of increased drilling.

Electrical supplies from hydropower will also increase if normal rains return to the Northwest this fall. That in turn would decrease reliance on more expensive gas-generated power, dampening the demand and price for natural gas.

Lynda V. Mapes can be reached at 206-464-2736 or lmapes@seattletimes.com.