From:

Subject:
Date:
To:

Douglas Grandt answerthecall@me.com

S. 2012 Energy Policy Modernization Act of 2015: LET'S HEAR FROM THE DISTRESSED ENERGY INDUSTRY
March 18, 2016 at 7:53 AM
Edward Hild (Sen. Murkowski) Edward_Hild@murkowski.senate.gov, Travis Lumpkin (Sen. Cantwell)
Travis_Lumpkin@cantwell.senate.gov, Colin Hayes (Senate ENR Ctee) Colin_Hayes@energy.senate.gov,
Angela Becker-Dippmann (Senate ENR Ctee) Angela_Becker-Dippmann@energy.senate.gov
Cc: David Cleary (Sen. Alexander) David_Cleary@alexander.senate.gov, Dan Kunsman (Sen. Barrasso)
Dan_Kunsman@barrasso.senate.gov, Joel Brubaker (Sen. Capito) Joel_Brubaker@capito.senate.gov,
James Quinn (Sen. Cassidy) James_Quinn@cassidy.senate.gov, Jason Thielman (Sen. Daines)
Jason_Thielman@daines.senate.gov, Chandler Morse (Sen. Flake) Chandler_Morse@flake.senate.gov,
Chris Hansen (Sen. Gardner) Chris_Hansen@gardner.senate.gov, Ryan Bernstein (Sen. Hoeven)
Ryan_Bernstein@hoeven.senate.gov, Boyd Matheson (Sen. Lee) Boyd_Matheson@lee.senate.gov,
Mark Isakowitz (Sen. Portman) Mark_Isakowitz@portman.senate.gov, John Sandy (Sen. Risch) John_Sandy@risch.senate.gov,
Jeff Lomonaco (Sen. Franken) Jeff_Lomonaco@franken.senate.gov, Joe Britton (Sen. Heinrich) Joe_Britton@heinrich.senate.gov
, Betsy Lin (Sen. Hirono) Betsy_Lin@hirono.senate.gov, Patrick Hayes (Sen. Manchin) Patrick_Hayes@manchin.senate.gov,
Bill Sweeney (Sen. Stabenow) Bill_Sweeney@stabenow.senate.gov, Mindy Myers (Sen. Warren)
Mindy_Myers@warren.senate.gov, Jeff Michels (Sen. Wyden) Jeff_Michels@wyden.senate.gov,
Michaeleen Crowell (Sen. Sanders) Michaeleen_Crowell@sanders.senate.gov, Kay Rand (Sen. King) Kay_Rand@king.senate.gov
, Joe Hack (Sen. Fischer) Joe_Hack@fischer.senate.gov, Derrick Morgan (Sen. Sasse) Derrick_Morgan@sasse.senate.gov,
Jordan Cox (Sen. Fischer) Jordan_Cox@fischer.senate.gov, Ginger Willson (Sen. Sasse) Ginger_Willson@sasse.senate.gov,
Ali Aafedt (Sen. Hoeven) Alexis_Aafedt@hoeven.senate.gov
Bcc: Karen Billups (Senate ENR Ctee) Karen_Billups@energy.senate.gov

Dear Honorable Senators Lisa Murkowski and Maria Cantwell - Energy & Natural Resources Committee (ENR),

HEAR THE INDUSTRY DO NOT ADOPT S. 2012

S. 2012 has been in abeyance four weeks. Was it the debate on the Flint Amendment or something else that squelched it?
Or was Flint just a convenient excuse to kill S.2012 - Energy Policy Modernization Act of 2015?
Yesterday, the Department of Energy published a slide presentation State of the Market Report 2015 shedding official light on
the financial situation that is plaguing the petroleum industry, as well as positive advances in carbon-free energy installations.
The attached document contains summary information that is really something ENR must consider before moving forward with
S.2012it underscores how close we are to precipitous collapse of our oil and gas industry, which we should treat as national
resources. As a nation, We the People must be are prepared to steer industry leadersCEOs and Boards of Directorsto make
business decisions in the Public Interest and National Interest even though impending insolvency, debt default and bankruptcy
would suggest exercising fiduciary duty to the detriment of the Public Interest and National Interest.
It seems to me that each of you and ENR have a responsibility to consider all consequences of your actions related to S. 2012.
Search PRICE within the document, and you will find 78 occurrences on 17 pages. Low prices are damaging the industry.
Please read and contemplate the implicationsI believe you will agree that we have a grave predicament on our hands.
Doug Grandt
Enclosure: Dept of Energy March 17 2016 (Oil Gas Electricity) - 2015-som

Slide 1

State of the Markets Report

2015
Item No. A-3
March 17, 2016

Page 1 of 31

Slide 2

Highlights

Increased gas supply led to lower gas prices, and in turn, lower

electricity prices.

Declining oil and natural gas prices have put significant stress on

producers.

U.S. exported LNG from the lower 48 for the first time in history on

February 24, 2016.

Natural gas power generation exceeded that of coal in seven months

during 2015.

2015 was an eventful year in the energy markets as oil and natural gas prices fell
substantially due to surging supply and strong storage builds. Low prices were
beneficial for consumers, but have placed significant stress on producers and some
pipeline companies that have contracts with them. Despite low natural gas prices,
Marcellus and Utica natural gas production, the primary source of all new U.S.
production, reached record levels in 2015. Low gas prices resulted in natural gas
generation surpassing coal generation for seven months during 2015 and helped boost
exports to Mexico. In addition, low natural gas prices enabled the first U.S. LNG
exports in history from the lower 48. Production growth in the Marcellus and Utica
has resulted in the addition of 51 Bcfd in new pipelines in the past five years and
approximately 49 Bcfd of capacity is proposed or planned to come online by 2018 to
transport natural gas to markets.

Page 2 of 31

Slide 3

Highlights (continued)
Capacity

markets in PJM and New England became larger revenue

sources while the generation mix continues to change.

Distributed energy resources continued to grow in capacity and energy

markets.

SPPs footprint expanded while LMPs declined.

Generation from renewables continued to set records nationwide,

particularly from California and MISO.

In the wholesale electricity markets, the generation fuel mix has changed, led by the
growing supply of natural gas and renewables. Distributed energy resources
continued to grow, as plans to integrate them into the wholesale markets were
approved by the California Public Utilities Commission and became more detailed in
New York. In the upper Midwest, SPPs footprint expanded. Finally, generation from
renewable sources continued to grow rapidly nationwide.

Page 3 of 31

Slide 4

NG Prices Fall Across U.S.

Spot Natural Gas Prices 2015 Average ($/MMBtu)

Source: Derived from Platts data

Fundamental changes in the North American natural gas market substantially drove
down U.S. natural gas spot prices in 2015. Production and storage reached record
levels, while demand rose modestly, tempered by the El Nio warm weather during
the 2015-2016 winter. Natural gas demand increases came from the addition of new
gas-fired generation and increasing utilization rates at existing gas-fired plants.
Despite a warmer than average summer, non-winter prices fell to their lowest levels
in 20 years, which in turn led to lower wholesale electricity prices, as gas-fired
generation set the price in many power markets.
With the exception of the Northeast, including New England, regional price
differences across the country were not large, a sign that midstream investments over
the past 10 years have largely relieved natural gas transportation constraints.
However, insufficient pipeline takeaway capacity in the producing regions of Ohio,
West Virginia, and Pennsylvania has led to a local gas surplus in the area, resulting in
lower prices for producers. In contrast, pipeline constraints near Algonquin Citygates
at Boston, Transco Zone 5 in the Mid Atlantic, and Transco Zone 6 New York, resulted
in higher prices for consumers in 2015. Still, prices at these demand hubs decreased
substantially from the previous year due to the warmer than normal winter, greater
LNG imports, and increased production close to the region.
Page 4 of 31

Staff analysis indicates that new capacity additions should significantly relieve
transportation constraints in these regions by 2019 if projects that are planned and
under construction are approved and completed by the scheduled in-service dates.
The outlook for 2016 continues to point to low prices because of continued strong
production and high storage.

Page 5 of 31

Slide 5

Natural Gas Futures Decline

$3.50
$3.00
$2.50

Apr-19

Jan-19

Oct-18

Jul-18

Apr-18

Dec-15
Jan-18

Jul-17

Jul-15
Apr-17

Jan-17

Jan-15
Oct-16

$1.50

Oct-17

$2.00
Jul-16

Source: Derived from

Bloomberg data

$4.00

Apr-16

NYaEX Futures Curve ($/aaBtu)

$4.50

The price of natural gas futures contracts has dramatically decreased over the past
year, primarily because of the increase in supply from the Appalachian Basin. Over
the course of one year, the futures curve fell by approximately $1.00/MMBtu, a 27
percent decrease. It is unlikely that Henry Hub prices will surpass $4.00/MMBtu in the
near future due to the massive shale gas resource base available below this price,
which effectively places a cap on prices.
In contrast, futures prices at hubs near the Marcellus and Utica producing regions
began to strengthen towards the end of 2015. Prices at hubs near production areas in
the Northeast have been among the lowest in North America over the past few years
because supply in the area has been confined by a lack of pipeline takeaway capacity.
However, new pipeline capacity such as REX East-to-West and other projects planned
for 2016 will relieve gas transportation constraints into the Midwest, Northeast,
including New England, and Southeastern markets.

Page 6 of 31

Slide 6

2015 Prices of Crude and OilIndexed Products Decline

$25.00

Spot Price ($/MMBtu)

$20.00
$15.00
$10.00
$5.00

Brent

Sakai LNG

UKNBP

$0.00

Source: Derived
from EIA data

The price of crude oil dropped 66 percent between June 2014 and December 2015,
which has implications for North American natural gas markets in a multitude of ways.
First, although there are important differences between oil and gas markets, many
North American companies are involved in the production of both. Nearly a sixth of
U.S. natural gas is a by-product of crude oil production, so a decline in oil production
directly reduces associated natural gas output. Additionally, LNG is an important
potential source of future demand growth for U.S. natural gas producers. The price
of LNG in most long-term contracts is indexed to oil, and low LNG prices may reduce
the prospects of U.S. LNG exports. Finally, low prices have strained many producers
balance sheets, leading to potential credit defaults, consolidation, and lay-offs.
U.S. producers have been surprisingly resilient to the price declines so far by reducing
costs. However, continued low prices are negatively affecting U.S. oil and natural gas
producers, and present a downside risk to future production. Although many of these
companies are not under FERC jurisdiction, their failure could impact certain
midstream companies that rely on long-term contracts with producers to finance
pipeline projects. The effects of the price decline on capital investment have been
profound. Over $380 billion worth of global investment in oil and natural gas projects
has been postponed, the U.S. oil rig count dropped by 807 rigs over the course of
2015, a 61 percent year-on-year decline, and the U.S. upstream oil and natural gas
Page 7 of 31

industry shed approximately 17,000 jobs in 2015 according to the Bureau of Labor
Statistics.

Page 8 of 31

Slide 7

U.S. NG Production
Plateaus in 2015
80

Southeast (onshore)

GOM

Midcon

Midwest

Rockies

Southwest

Texas (onshore)

Northeast

Production Rate (bcfd)

70

Source: Derived
from Bentek
Energy data

60
50
40
30
20
10
0

2010

2011

2012

2013

2014

2015

The global oil situation notwithstanding, U.S. natural gas production has increased 3.6
percent per year since 2010, hitting a new record of 72.6 Bcfd in 2015. However,
there are signals that natural gas production has plateaued and may begin to decline.
Nearly all production growth in North America over the past 5 years came from the
Marcellus and Utica Shale formations in the Appalachian Basin, as seen in the top teal
layer of the graph. Production from the Eagle Ford shale in Texas (included in the
gold layer) experienced increases as well, although low liquids prices increasingly
challenge producers there.
The North American natural gas market will likely remain oversupplied and prices low
in the near term, pushing high cost producers out of the market. However, as
producer prices recover, there appears to be ample low cost resources waiting in the
wings, with some producers in the Marcellus and Utica shales reporting a $2.50/MMBtu
or lower breakeven price. Total U.S. proven natural gas reserves have steadily
increased since the onset of the shale revolution and stood at 388 trillion cubic feet
(Tcf) at the end of 2014. As natural gas demand increases and prices rise, additional
supply can be brought online relatively quickly because shale gas projects in wellestablished areas require relatively less lead-time than conventional projects. In
addition, there are a large number of drilled but uncompleted wells, and some
Page 9 of 31

producers are cutting back output from existing wells in the current low price
environment.

Page 10 of 31

Slide 8

U.S Storage Levels (Bcf)

Storage Levels Reach

All Time Record

5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

SOUTH CENTRAL
PACIFIC

MIDWEST
MOUNTAIN

EAST
5 YEAR AVERAGE

Source: Derived
from EIA data

Natural gas storage levels reached a record high 4 Tcf in November despite starting
the winter season below the 5 year average. The 2,469 Bcf net injection in 2015 is
second only to 2014s record 2,746 Bcf net injection. Based on demand so far this
winter, it is likely that the natural gas in storage will be at near record levels come
spring, putting further downward pressure on prices for the rest of 2016.
Despite an abundance of storage on average, there are challenges in southern
California. A leak was discovered at SoCalGas Aliso Canyon natural gas storage field
on October 23, 2015. To rectify the problem, SoCal began to rapidly draw down the
field while at the same time reducing imports from pipelines at the California border,
and on February 18, 2016, SoCal permanently sealed the leaking well. Aliso Canyon
represents 63 percent of SoCals storage, and could be shut down for the foreseeable
future. The closure is having impacts on SoCals system reliability, flexibility, and
prices. Moreover, natural gas forward prices in California have risen steadily since
November 2015 due to expectations that increased spot gas purchases will be
necessary to substitute for the lost Aliso Canyon storage withdrawals during next
winters peak demand season. There are also concerns regarding the impact on power
generation this summer, since nearby plants rely on Aliso Canyon storage to meet peak
requirements.
Page 11 of 31

Page 12 of 31

Slide 9

Total U.S. Natural Gas

Demand - All Sectors
140
120

Bcfd

100
80
60
40
2010 - 2014 Range

20
Source: Derived
from Bentek
Energy data

Jan

Feb

Mar

Apr

May

Jun

Jul

2015

Aug

Sep

Oct

Nov

Dec

In general, natural gas demand growth has trailed supply, contributing to low prices.
Total U.S. natural gas demand grew only 1.3 percent in 2015, driven by a 3.8 percent
growth in power burn. Industrial natural gas demand fell slightly, while residential
and commercial gas demand fell by 2 percent.
Natural gas demand exceeded the 5-year range during the summer due to an 18
percent increase in summer power burn over the summer of 2014. Due to low natural
gas prices, for the first time in U.S. history, natural gas power generation surpassed
coal based generation on both a quarterly and monthly basis. Summer temperatures
were 8 percent warmer than in 2014, but the 2015-2016 winter was relatively mild
due to El Nio, which moderated residential and commercial demand at the end of
the year.
Long term demand growth for U.S. natural gas will likely come from increased gasfired electric generation, particularly in the Southeast, growing industrial demand,
LNG exports, and pipeline exports to Mexico.
Over the past 3 years, the Southeast added approximately 6.5 GW of nameplate gasfired electric generating capacity and total natural gas demand in the region during
2015 increased 5.2 percent over 2014 levels. Staff expects this trend will continue
Page 13 of 31

with an additional 17 GW of gas-fired capacity to be added in the Southeast by 2020.

Not only has the amount of gas-fired capacity increased, but capacity factors have
increased as well because low natural gas prices relative to other fuels has increased
the economic dispatch of gas-fired units. Capacity factors in the Southeast increased
by 5-11 percent in each month in 2015 compared to the same months in 2014 and
2013.
Industrial gas demand declined slightly in 2015, but we expect that it has the
potential to grow by approximately 2.5 Bcfd over the next five years as major
projects are added.

Page 14 of 31

Slide 10

LNG Exports Could Add to

U.S. Natural Gas Demand
16

LNG Export Capacity (Bcfd)

14
12
10
8
6
4

LNG Export Capacity (Bcfd)

2
0

Jan-2016

Jan-2017

Jan-2018

Jan-2019

Jan-2020

Source: FERC data

LNG exports are a significant potential source of future natural gas demand growth.
The first export of LNG from the U.S. mainland shipped from Chenieres Sabine Pass
terminal on February 24th, 2016. At this time, it is difficult to predict the volume of
LNG exports in coming years because falling global prices have made potential U.S.
exports less profitable.
Staff estimates that exports could reach 8.5 Bcfd by 2020, once all of the six
terminals where construction has begun or which have secured funding, are
completed. However, the long-term success of American LNG exports remains
uncertain. The U.S. could add approximately 15 percent to world liquefaction
capacity in a market that is currently oversupplied. New entrants in Australia are also
bringing online significant new capacity into a global market that is already soft as
demand for imports into North America and Asia weakens.

Page 15 of 31

Slide 11

800

16

700

14

600

12

500

10

400

300

200

100
-

2
ICE Financial (left axis)

ICE thysical (right axis)

2008 2009 2010 2011 2012 2013 2014 2015

thysical Trading Volumes (Tcf)

Source:
InterContinental
Exchange (ICE)

Financial Trading Volumes (Tcf)

Financial Natural Gas

Trading Declines

Trading of natural gas financial products on the InterContinental Exchange (ICE) fell
10 percent in 2015, while ICE physical trading increased 1 percent from 2014,
breaking the downward trend seen since 2010. Financial trading volumes on ICE still
significantly outweigh physical trading volumes, but they have fallen at a faster rate
than physical trading volumes. In 2015, the ratio of ICE financial to physical trading
volumes was 38 to 1, a decline from 43 to 1 seen in 2014.
Financial trading on ICE fell to 404 Tcf in 2015, a 46 percent decline from the 2011
peak of 746 Tcf. The majority of the decline can be attributed to the Nymex Henry
Hub futures lookalike product, ICEs largest financial product. Low and stable natural
gas prices have reduced market activity, and the decline in trading follows larger
financial industry trends. Commodities trading revenues at the worlds twelve largest
banks declined 18 percent relative to 2014.
Although physical natural gas trading on ICE rose to 10.6 Tcf in 2015, physical trading
on ICE is down 21 percent since it peaked in 2010 at 13.8 Tcf. ICE physical volumes
are only a subset of the total physical natural gas market and there are significant
index based transactions done off-exchange reported on the FERC Form 552. These
transactions accounted for over 43 Tcf (75 percent) of the physical natural gas market
in 2014, but the 2015 Form 552 data will not be available until May 1st, 2016.
Page 16 of 31

Page 17 of 31

Slide 12

On-Peak Day-Ahead 2015

Electric Spot Prices Fall
MidColumbia
$26

-32%

NP 15
$36

-31%

-35%

-35%

$ = Average 2015 Spot trice

% Decrease from 2014

-35%

-30%
SPP
$29

Palo Verde
$27

Mass Hub
$49

Indiana
Hub
$33

ERCOT
North
$30

-32%

PJM West
$43

-32%

NYISO ZJ
$48

-35%
Into
Southern
$31

-27%

Sources: NYMEX and CME Clearport market data

Turning to the power markets, wholesale electricity prices were down 27-35 percent
across the nation in 2015 compared with 2014 at major trading hubs on a monthly
average basis for on-peak hours. For example, New York LMPs were the lowest they
have been in 15 years. The decline in wholesale power prices was largely attributable
to lower natural gas prices. Because natural gas-fired generation sets the marginal
price in many markets, wholesale electricity prices are sensitive to changes in natural
gas prices.
Monthly average wholesale electricity prices were typically highest in New York and
New England, as in 2014. Prices were often the lowest at Mid-Columbia in the Pacific
Northwest, where hydroelectric dams are a plentiful and low-cost resource, even
though water and snowpack levels in 2015 were low compared to historical averages.
In both regions, the average market-clearing prices were consistent with the
downward pricing trend nationwide.

Page 18 of 31

Slide 13

Capacity and Energy Prices

Diverge in New England & PJM
New England ISO (Mass Hub)
Average Day-Ahead LMP (2013-15): -25.35%
Forward Capacity Auction Clearing Price for 2018-19 period relative to 2016-17 period:
+203%
Forward Capacity Auction Clearing Price for 2019-2020 period relative to 2018-2019
period: -26%
PJM (Western Hub)
Average Day-Ahead LMP (2013-15): -6.02%
Base Residual Auction Clearing Price for Base Capacity 2018-19 period relative to 2016-17
period (Rest of RTO): +152.6%
Base Residual Auction Clearing Price for Capacity Performance in the 2018-2019 period
Sources: Derived
relative to the 2016-2017 period (Rest of RTO): +23.1%
from PJM and
ISO-NE data

Across eastern RTOs, capacity market prices have been diverging from wholesale
energy prices for several years because of changes in the generation mix, notably
lower natural gas prices.
Between 2013 and 2015, average day-ahead LMPs for the ISO New Englands
Massachusetts Hub have fallen by 25 percent, while average day-ahead LMPs for the
PJM Western Hub have fallen by six percent. These falling prices are the direct result
of lower natural gas prices. These lower natural gas prices have driven out nonnatural gas fired capacity like coal-fired Salem Harbor plant and the Vermont Yankee
nuclear facility in ISO New England, and have forced the Byron and Quad Cities
nuclear plants to rely upon capacity market auctions for additional revenues in PJM.
Pressure from lower natural gas prices and environmental requirements have led to
tightening supply in both regions. As a result, we have seen increasing capacity prices
in those markets. These lower LMPs and higher capacity prices in PJM have resulted
in the all-in costs of energy, capacity, transmission, and ancillary services to
increase by five percent between 2013 and 2015.
With respect to capacity prices for auctions conducted during this period, the clearing
price for capacity in Rest of RTO zone in PJM rose by 152.6 percent. For ISO-NE, the
Page 19 of 31

capacity auction clearing price has risen by over 200 percent for auctions held during
those same years. However, ISO-NEs most recent auction, for the 2019-2020 delivery
period, resulted in a 26 percent decrease in prices over the prior delivery year, which
reflects new capacity entering the market.
Both PJM and ISO New England instituted enhanced performance requirements in 2015
in their capacity markets. Nearly 90 percent of the capacity that cleared in PJMs
capacity auction is subject to these performance requirements during the 2018-2019
commitment period. And 100 percent of the capacity that cleared in ISO New
Englands capacity auction is subject to the performance requirements during the
2018-2019 and 2019-2020 periods.

Page 20 of 31

Slide 14

Electricity Demand
Slightly Down in 2015
1,600

Annual Sales in aillions of aWIs

1,400
1,200
1,000
800
600
400
200

Residential
Commercial
Industrial

Source: Derived
from EIA data

As depicted in this chart, electricity demand fell by 1.1 percent in 2015, led by the
declining usage of electricity in the industrial sector, and little or no growth in the
residential and commercial sectors. The flattening in electricity consumption has
been a product of relatively low economic growth and increased efficiency in
electrical appliances and processes.
Residential electricity consumption during the first quarter of this year was projected
to be 5.8 percent lower than the first quarter of 2015, when the country experienced
colder-than-normal weather, with heating degree days seven percent above the 10year average.

Page 21 of 31

Slide 15

SPPs Expansion Brings New

Generation and New Load

Source: Derived
from Yes Energy
data

Turning to market expansions in 2015, SPP expanded its market footprint on October
1st by incorporating the Western Area Power Administrations Upper Great Plains
Region (WAPA-UGP), Basin Electric Power Cooperative (Basin) and Heartland
Consumers Power District (Heartland)now collectively known as the Integrated
System (IS). The new members have a peak winter load of about 5,000 MW and serve
electricity customers in six states.
With the expansion, SPP has nearly 5,000 substations and over 800 generating units.
In total, the Integrated System increased SPP capacity by 7.6 GW and increased the
winter peak load forecast from over 35 thousand MW in the winter 2014/15 to nearly
42 thousand MW in the winter 2015/16. Moreover, hydroelectric generating capacity
has also increased by approximately three times in the SPP footprint, with the IS
system.
Focusing on the graph, LMPs in the South Hub of SPP have been declining since July
2015, matching the trend of declining wholesale energy prices nationwide.
Specifically, average real-time LMPs were about $37.78/MWh in South Hub in 2014 and
declined to about $25.38/MWh in 2015. Staff expects that SPP will issue a report on
the performance and contributions of the Integrated System to the SPP market when
more data become available.
Page 22 of 31

Page 23 of 31

Slide 16

Net Metering and Distributed

Energy Resources Growing
70,000
60,000
50,000

TOTAL ELECTRIC ENERGY SOLD BACK TO THE

UTILITY FOR ALL STATES SERVED (MWh)

40,000
30,000
20,000
10,000
0
Source: Derived
from EIA Form
826 data

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct
2011

2012

2013

2014

2015

This bar chart shows that the total energy sold back by net metering customers to
utility companies has grown year on year, since 2011. The total electric energy sold
back to utility companies by net metering customers nationwide has increased by an
average of nearly 500 percent from 2011 through 2015, while the net generation by
power plants nationwide has increased by an average of 1.2 percent over that time
span.
For example, New York ISO has made integrating distributed energy resources one of
its four Strategic Initiatives for the period 2016-2020. The New York State Energy
Research and Development Authority has estimated that residential photovoltaic
installations will have a potential of 881 MW of cumulative peak capacity and 2,836
GWh of energy by 2020 in New York state.
Meanwhile, in July 2015, the California ISO approved a plan that made it the first
U.S. wholesale power market to allow aggregators of distributed energy resources to
sell into the wholesale market, although this matter is currently pending before this
Commission. More recently, the California Public Utilities Commission voted to
sustain the net metering credit at the retail rate until 2019.

Page 24 of 31

Page 25 of 31

Slide 17

DR Revenues Have Grown

Through Capacity Markets
Total Demand Response
Revenues from Capacity
Payments (Million USD)

700
600
500
400
300
200
100
0
2016/2017
Source: Derived
from PJM and
ISO-NE

2017/2018

PJM

2018/2019

ISO-NE

On a related matter, demand response programs in certain RTOs have experienced a

growth in revenues because of rising capacity market prices, as shown in this slide.
For the delivery periods 2016-17, 2017-18, and 2018-19, the revenues to demand
response participants in PJM and ISO New England have increased with each new
delivery period.
In some markets, demand response program participation has increased, such as in
New York. The recent Supreme Court ruling on the Commissions Order 745 is
expected to result in faster growth in demand response in wholesale electricity
markets.
Moreover, demand response programs led to energy savings of 1.4 million MWh in 2014
nationwide, with 9.3 million enrolled demand response customers.

Page 26 of 31

Slide 18

Renewables Output Continues

to Grow in CAISO and MISO

Source: Derived
from MISO and
CAISO data

In recent years, continued investment in solar and wind energy increased output from
national renewable generation. Between 2013 and 2015, wind generation rose from
4.1 percent to 4.6 percent of total generation from utility-scale facilities. Overall
solar generation rose from two-thirds of one percent to nearly one percent of total
generation between 2014 and 2015.
Consider these two graphs, showing the ratio of solar energy to total load in California
ISO (CAISO) on the left and the ratio of wind energy to total load in the Midcontinent
ISOs (MISO) Midwest zone on the right.
On the left side, you can see that solar generation has made significant in-roads in
California, with over 6 GW of installed utility-scale solarand about half of the
nations capacity at present. Solar capacity amounts to 13 percent of installed
capacity (75 GW) and 21 percent of peak load (47 GW) in the California ISO, and it has
lowered LMPs, particularly in the mid-day hours.
The right side of the slide shows that, in MISO Midwest, wind energy has served more
load, year on year, for each hour of the day from 2013 through 2015. During the past
year, wind capacity grew from 13.7 GW to over 15 GW. In November 2015, MISO wind
set a new hourly peak of 12.6 GW, or 5.8 percent higher than the 2014 peak, although
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a new record has been set this year. Moreover, 2,234 MW of additional wind capacity
are expected to come online in MISO in 2016, bringing the total to over 17 GW in
installed capacity by the start of 2017.
SPP also set a record for renewables generation in 2015, as output exceeded 2014
output by approximately 1.5 million MWhs.

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Slide 19

million aWh

2015 Hydropower was

Below Average in West
18000
16000
14000
12000
10000
8000
6000
4000
2000
0

2010-14 Avg.

2015

Source: Derived
from EIA data

As noted earlier, hydropower production in the West was below historical averages
last year, largely because of continued drought and reduced snowpack. Total net
generation at 23 hydroelectric plants across the Pacific Northwest was 18.4 percent
below the year-ago level and 6.9 percent below the 12-year average. As you can see
from this chart, hydroelectric generation remained especially low throughout the
summer, about 32 percent below the average of the previous five summers (2010-14).
The current hydropower outlook in the West is positive. At the end of 2015, snowpack
levels were significantly higher than a year earlier, lifting the year-to-date levels
above the median across multiple Western states. Hydropower production was above
average in the Pacific Northwest in February this year and increased slightly above the
January total, bringing year-to-date levels in line with historical averages.

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Slide 20

Financial Trading of
Electric Products in 2015
NW Iubs

aISO

SW Iubs Stt

CAISO

NYISO
tJa

ISO-NE

Source: Derived
from InterContinental
Exchange data

(units in aWh)

In our final slide, this chart shows all cleared futures traded on the InterContinental
Exchange (ICE) for electric products outside ERCOT in 2015. Last year, 94 percent of
the financial trading of U.S. electricity products outside ERCOT took place at an RTO
hub, down from 96 percent in 2014. Most regions in the country experienced a
decrease in financial trading volumes compared with 2014 with the exception of SPP,
CAISO, and NWPP. PJMs financial products continue to be the most traded on ICE,
with 64 percent of the total financial trades involving a PJM product, down from 73
percent in 2014.

Page 30 of 31

Slide 21

State of the Markets Report

2015
Item No. A3
March 17, 2016

This concludes staffs prepared comments. A copy of this presentation will be posted
on the Commissions website. We would be happy to answer any questions you may
have. Thank you.

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