California Heat Pushes Power to Six-Year Seasonal High

Photographer: David Paul Morris/Bloomberg

California is grappling with a record drought that’s reducing hydroelectric supplies at a time when inventories of natural gas, a fuel used to produce power, are hovering near a decade low. Close

California is grappling with a record drought that’s reducing hydroelectric supplies at... Read More

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Photographer: David Paul Morris/Bloomberg

California is grappling with a record drought that’s reducing hydroelectric supplies at a time when inventories of natural gas, a fuel used to produce power, are hovering near a decade low.

Spot electricity in California, the second-leading power-consuming state, jumped to the highest seasonal level in six years as surging temperatures boost air-conditioning demand.

The National Weather Service issued a heat advisory through tomorrow for parts of the San Francisco and Monterey Bay areas. Temperatures in the interior valleys of the state should rise to 100 degrees Fahrenheit (38 Celsius) with San Francisco reaching the mid-90s tomorrow, the weather service said in forecasts yesterday. The May 13 record high for San Francisco is 87, weather service data show.

California is grappling with a record drought that’s reducing hydroelectric supplies at a time when inventories of natural gas, a fuel used to produce power, are hovering near a decade low. While resources are adequate, the grid operator said last week, the state faces reliability challenges and higher prices, especially after the shutdown of the Edison International (EIX)’s San Onofre nuclear plant.

“This will be a fairly good test of the market being that it is early to get this kind of heat and our eyes should be focused on California given their lack of hydro and lack of nukes,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “We’re going to get greater volatility and greater prices for gas and power.”

On-peak power at Northern California’s NP15 hub, including San Francisco, for next-day delivery rose $4.68, or 7.8 percent, to $64.93 a megawatt-hour today, the most for this time of the year since 2008, according to broker data compiled by Bloomberg.

Southern California

The same contract at the SP15 hub in Southern California advanced $2.19, or 3.5 percent, to $64.95, a six-year seasonal high. Both hubs are also trading at their highest prices since March 4.

Daily records will probably be broken across much of central and southern California tomorrow or the following day, Phillip Vida, lead meteorologist at MDA Weather Services in Gaithersburg, Maryland, said an e-mail today.

The hottest weather of the year, with wind gusts averaging 15 to 25 miles per hour and reaching as much as 60, will “push the wildfire danger to critical levels this week,” Alex Sosnowski, a senior meteorologist with AccuWeather Inc. based in State College, Pennsylvania, said in a website posting.

PG&E Corp. (PCG)’s Pacific Gas and Electric Co., California’s largest utility, is monitoring what could become the first significant heat wave of the year, Joe Molica, a spokesman for the utility in San Francisco, said by telephone May 9. PG&E meteorologists are preparing two forecasts a day, he said.

‘We’re Ready’

“We’re certainly not anticipating any impact to our customers based on the forecasted weather and our estimated system loads,” he said. “We train and drill for these types of situations year-round, so we’re ready.”

Sacramento Municipal Utility District has “enough margin for everything to be OK,” Chris Capra, a spokesman for the utility whose service area spans 900 square miles around Sacramento, said by phone May 8. “Now of course, everything goes out the window if there’s a transmission fire or something that would make it difficult for us to get power, but things are looking pretty solid through the summer.”

Electricity demand peaked at 3,299 megawatts within the SMUD region on July 24, 2006. “We haven’t been close to that record in eight years,” he said.

SMUD has spent $35 million on wholesale power purchases this year to make up for a shortage of hydropower caused by the drought. Hydropower makes up 15 percent to 20 percent of the utility’s portfolio, Capra said.

Bolstering Supplies

Southern California has been bolstering its power supplies with renewables and natural gas-fired generation after Edison permanently shut the 2,200-megawatt San Onofre nuclear generating facility in January 2012 because of a radioactive leak and unusual wear on steam-generator tubes.

The drought will cut hydropower resources by 1,370 megawatts under a normal scenario and 1,669 in an “extreme situation,” the California Independent System Operator Inc., which manages the state grid, said in a May 9 assessment.

Spot gas prices in California have been trading at seasonal highs since the start of February on the IntercontinentalExchange in data going back to 2008. PG&E City Gate, which includes San Francisco, rose 4.01 cents, or 0.8 percent, to $5.0822 per million British thermal units yesterday before slipping to $5.0039 today. SoCal City Gate jumped 13.86 cents, or 2.9 percent, to $4.9689 and dropped to $4.8638 today.

Gas inventories in the U.S. West totaled 203 billion cubic feet in the week ended May 2, 37 percent below the five-year average and 41 percent lower than year-earlier levels. Supplies dropped to 160 billion in late March, the least in 10 years.

The early heat “is what everyone feared,” Schork said. “We’ve slashed our nuclear capacity and the state is absolutely vulnerable to demand spikes.”

To contact the reporters on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net; Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Margot Habiby

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