U.S. Power Traders Are Bored and Can't Wait for Summer's Sizzle

(Bloomberg) -- It’s been a spring without spikes for U.S. power traders, and June probably won’t help much either in most markets.

That’s leaving them craving for the prolonged heat waves of summer -- not to take a vacation on the beach, but for temperatures to shake up markets and spur price volatility.

In the largest U.S. market -- spanning from Washington, D.C. to Chicago -- April and May brought little of the price swings that traders rely on to capture profit margins. Shoulder months between winter heating and summer cooling are rarely exciting. But this year was particularly dull, with power in the PJM Interconnection LLC system trading in the narrowest bands going back nine years, according to BloombergNEF data.

“This has been the most boring shoulder season I’ve seen,” said Andrew McCoy, a power markets analyst at EBW Analytics Group. “We’re all looking forward to the first heat waves of summer.”

Blame it on the jet stream. The channel of winds carried stormy weather too far north of many of the areas with large populations in the U.S. Midwest and Northeast, and minimized temperature variability this spring, said Jim Rouiller, chief meteorologist at Energy Weather Group in Philadelphia.

“There wasn’t any long-lasting cold or warmth,’’ Rouiller said. “It will remain that way for a while longer, probably through late June.’’

Not all markets were sleepers this spring. Southern California, for one, got whipsawed when pipeline maintenance choked supplies of natural gas and sent power prices soaring to more than $270 a megawatt-hour.

Record Summer Demand

For wider power markets, the coming heat could bring more volatility. In Texas, the grid operator forecast record demand this summer with an expected peak of more than 74 gigawatts. The Electric Reliability Council of Texas also expects power prices to surge during extended heat waves, when supplies will be so tight that they expect to call on consumers to turn off lights and raise thermostats.

The small buffer between the amount of power plants available and expected demand this summer is one reason NRG Energy Inc. decided to fire up a 385-megawatt natural gas plant in Corpus Christi that’s been mothballed for three years, said Christopher Moser, executive vice president of operations.

“This is the tightest reserve margin we’ve ever seen,” Moser said.

--With assistance from Brian K. Sullivan.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Pratish Narayanan, Joe Ryan

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