Message-ID: <9713983.1075856544981.JavaMail.evans@thyme> Date: Fri, 13 Oct 2000 09:17:00 -0700 (PDT) From: vince.kaminski@enron.com To: vkaminski@aol.com Subject: CAMBRIDGE ENERGY UPDATES ON GAS AND POWER Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Vince J Kaminski X-To: vkaminski@aol.com X-cc: X-bcc: X-Folder: \Vincent_Kaminski_Jun2001_4\Notes Folders\'sent mail X-Origin: Kaminski-V X-FileName: vkamins.nsf ---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 10/13/2000 04:23 PM --------------------------- Margaret Carson@ENRON 10/13/2000 01:43 PM To: Julie A Gomez/HOU/ECT@ECT, Stephanie Miller/Corp/Enron@ENRON, Vince J Kaminski/HOU/ECT@ECT, Scott Neal/HOU/ECT@ECT, Jeff Dasovich/NA/Enron@Enron, Daniel Allegretti/HOU/EES@EES, Mike McGowan/ET&S/Enron@ENRON, Lorna Brennan/ET&S/Enron@ENRON, Bill Cordes/ET&S/Enron@ENRON, Mark Schroeder/LON/ECT@ECT, Mark Koenig/Corp/Enron@ENRON, Kathryn Corbally/Corp/Enron@ENRON, James D Steffes/NA/Enron@Enron cc: Subject: CAMBRIDGE ENERGY UPDATES ON GAS AND POWER The CERA executive roundtable meeting summary results are as follows: If you are interested in a complete set of the graphs from the presentations please let me know. ELECTRIC POWER PART ONE PEAK TRENDS It is noteworthy how rapidly volatility can change geographically in the electric markets. Last year the U.S. Midwest/South areas were the peakiest, but it reversed this year with the West being highest at the peaks and in New England -- but only in early May 2000 were hgih peaks apparent there. Demand can vary from half the peak max to the max. Peakers can be on the margin on the upper half of the supply mix in many markets. We need to watch gas prices this winter as they can effect winter peak power prices--not just a summer phenomenon. Where are the most gas plants now on the margin? Ercot, FRCC, Neepool, NYPP, SERC, WSCC A DISCONNECT There is a disconnect in the on-peak forward market price for power in Texas now; with the added 5 GW Texas forward markets do not seem to take this into account yet. (Note: Vince Kaminski) The Texas forward market should be very soft next summer unless we return to 105 degree F temperatures. New England is just one year behind Texas in its overbuild. One main reason for the spikes in Calif is power plants did not get built in Calif due to a lack of a capacity charge ..and this is not a panacea...as Calif also has many enviro/siting hurdles that challenge developers who want to site as well. . TSUNAMI OF MERCHANT CAPACITY PLANNED? CERA sees over 240,000 MW of planned capacity over the 2000-2005 period; with 25,000 MW being completed in 2000; 35 MW under construction for 2001 and 15 000 MW under construction for 2002-- but the market only needing 13 000 to 15 000 MW a year. This shall lead to many and large deferrals and delays, especially in 2001 and 2002. What has been the recent history? US wide over the past 3 years just 11 percent of the planned capacity was actually finished and 18 percent of that planned was actually under construction. They assume a 24 month construction completion time. FOR PROFIT TRANSMISSION Cera sees Allegheny Energy in PJM West; Entergy in SPP; Southern in SERC and Alliant in MAPP as all for profit transcos. TYPICAL O&M COSTS IN U.S. TRANSCOS Why do O&M costs differ widely among transcos? Some costs are 3 to 8 times higher than the norm at $5000 in O&M expense per 5000 system miles in size. Regulatory overhang allows this...this is weather adjusted to remove high costs from big freezes etc. USING REAL OPTION MODEL VS POWER PLANT NPV You want to try to have the base value of an asset going forward when you expect volatility and include historical spreads and fuel/power price swing assumptions. CALIFORNIA MARKET IS BROKEN This market starts to work only after it gets into a reliability crisis. No incentives to add power plant capacity and huge hurdles against siting even when the market signals the need is there. Will the regulator's post 2000 fix make it worse? PEAK POWER DEMAND FORECAST As percent per year change vs 2000 Cera sees 2001 as follows: New Eng / New York 6.3 / 6.2 percent PJM / ECAR 7.7 / 4.4 percent MAIN / MAPP 3.0 / -0.1 SERC / FRCC 1.3 / 2.3 percent SPP / ERCOT 4.0 / 2.3 NWPP / Rockies -6.8 / -0.6 AZNM / Calif-SoNV -0.9 / 4.0 USA avg up 2.6 percent It looks like Calif. in in for a touch summer in 2001 as well. NATURAL GAS PART TWO SUPPLY SHORT Year 2001 supply rebound could be 800mmcfd to 1.0 bcfd; Canada in 2001 up only 400 a day; in the US we need 2 bcfd more supply for 2001 demand. alone let alone storage refill.... yet a cold winter now could add 3 to 4 bcfd to demand and slash storages. The fall in drilling in 1999 and early 2000 took 3.5 bcfd productive capacity out of the supply pool. It will take till 2005 for US production to reach a 4.1 bcfd gain versus today's production. ADDED GAS FOR POWER PLANTS Right now Cera expects an incremental need for 1 bcfd next year for these plants..this will keep prices high MUCH MORE POWER SWING 1990 to 1992 we needed 5 bcfd for power plant swings; now we need 10 bcfd; offpeak use is even up 5 bcfd vs 10 years ago. RESI USE IS UP The AGA disco members adds 750 000 new gas homes each year and this builds demand year round. INDUSTRIAL NUG DEMAND Of the 24 bcfd ( 8.77 Tcf) industrials gas use in the US; 8.6 bcfd ( 3.1 Tcf) of this is for power plant and non-mfg use. HOW FAST CAN CANADA ADD? Canada can add 3.6 bcfd by 2005 versus now; adding each year from 2001 to 2005 as follows: 500/800/900/700/700 mcfd annually. IS ARCTIC GAS ON THE HORIZON? Its is far away; maybe 4 or 5 bcfd by 2015.. This means up to 2.7 bcfd to flow to Midwest by 2015 and up to 2.4 bcfd to Calif./PNW on expansions by 2015.