Texas emissions and power markets

Carrie SistoDavid GivensJanuary 2012

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markets and extensively used in indexation of physical and financial

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Takeaways

• Regulatory uncertainty plagues Texas generators

• Reversion to CAIR eases 2012 compliance

• Forward power curves up on capacity scarcity

• Forward spark spreads reflect weaker gas prices

• Seasonality of spark spread should dictate dispatch

Regulatory uncertainty

• Cross-State Air Pollution Rule on hold– Pending review of 45 challenges

• Clean Air Interstate Rule to be enforced– At least through 2012

• Other regulations– Mercury and Air Toxics Standards– Cooling intake structures– Coal combustion residuals

Cross-State Air Pollution Rule States

States covered under CAIR

CSAPR group 2 SO2 prices trend lower

Aug-11 Sep-11 Oct-11 Nov-11 Nov-11 Dec-11400

1,000

1,600

2,200

2,800

3,400

2012

$/s

t

CSAPR NOx allowance prices down 90pc

Aug-11 Sep-11 Oct-11 Nov-11 Nov-11 Dec-110

1,000

2,000

3,000

4,000

5,000

2012

$/s

t

Ercot North peak forward curves

Jan-1220

35

50

65

80

95

8/25/2011

$/M

Wh

Ercot North calendar 2013 off-peak coal spark spreads

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11-2

0

2

4

6

8

10

2012

$/M

Wh

Ercot North ATC forward curves

Jan-1225

35

45

55

65

12/15/2011 8/25/2011

$/M

Wh

Ercot Houston ATC forward curves

Jan-1225

35

45

55

65

8/25/2011 12/15/2011

$/M

Wh

ERCOT South ATC forward curves

Jan-1225

32

39

46

53

60

8/25/2011 12/15/2011

$/M

Wh

Ercot West ATC forward curves

Jan-1215

25

35

45

55

65

8/25/2011 12/15/2011

$/M

Wh

Ercot North Peak Dailies belie forward curves

Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-110

150

300

450

600

$/M

Wh

Houston Ship Channel forward gas curve

Jan-123.0

3.5

4.0

4.5

5.0

5.5

10/26/2011

$/m

mB

tu

Ercot North calendar 2012 peak spark spreads

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-119

13

17

21

25

Coal

$/M

Wh

Ercot North calendar 2013 peak spark spreads

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-1112

16

20

24

28

Coal

$/M

Wh

ERCOT North calendar off-peak coal spark spreads

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11-2

0

2

4

6

8

10

2012

$/M

Wh

Allowances affect generation

• Result of purchasing allowances on 2012 ATC spark spreads

– $8.30/MWh for PRB coal

– $15.17 for natural gas

– $17.40 for lignite

Key challenges to CSAPR

• Definition of “significant contribution”– Cost threshold– Regional vs. state emissions

• Federalism– State authority to develop implementation plan

• Opportunity for public comment– Additional data, new allocation methods

Takeaways

• Forward power curves account for:– Capacity scarcity– Marginal fuel price changes

• Forward gas curve – Continued weakening in second half 2011– Spark spreads more favorable

• Stay on CSAPR leaves everything up in the air

• Compliance much less daunting in 2012 under CAIR

Thank you.

David GivensHead of gas and power services, North Americadavid.givens@argusmedia.com+ 1 202 349 2891

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