Heat wave across Western US keeping power demand, wholesale prices on the rise

A prolonged heat wave across large portions of the Western US is poised to keep temperatures elevated for the remainder of the week, driving up power demand and wholesale electricity prices even more throughout the region.

The US National Weather Service said in its short-range forecast July 10 that extreme and record-breaking heat would continue throughout most of the West, with high temperatures in the "110s [Fahrenheit] and 120s F possible in the typically hot desert/interior valley locations of California, Arizona and Nevada." The agency said that dozens of daily high temperature records are likely July 11 to 12 in areas from the West Coast to the High Plains.

"Excessive heat warnings and heat advisories remain in effect for much of the western United States in order to further highlight the dangerously hot temperatures," the NWS said.

Among notable metropolises in the West poised to see high temperatures above historical norms for the rest of week are Boise, Idaho; Las Vegas; Phoenix and Sacramento, California. Boise's temperature spiked to 104 degrees F July 9 and was forecast to average 105.6 F degrees July 10 to 14, about 12% hotter than the city's historical normal high temperature for the five-day period, according to CustomWeather data.

Idaho Power, the state's largest power utility, said it could set a peakload record this week as the heat wave continues. The utility's current peakload record of 3.751 GW was set June 30, 2021.

"Our focus has been on making sure we have enough generation resources and import capacity to satisfy our customers' needs," Idaho Power spokesperson Sven Berg said in a July 10 email to S&P Global Commodity Insights. "We also could deploy programs to reduce demand during peak hours (usually 4–10 pm), if needed.

According to CustomWeather, Sacramento is forecast to average 107 F degrees in high temperatures July 10 to 14, nearly 14% higher than historical norms for the five-day period. Las Vegas is predicted to average 113.6 F degrees in high temperatures, about 7% above historical norms; Phoenix is anticipated to average 113.2 F degrees in high temperatures, around 4% hotter than historical norms.

Arizona Public Service, the largest utility in that state, said the company has planned well in advance to handle surges in demand caused by temperatures Phoenix is likely to see this week.

"APS has a long history of providing reliable energy to our customers through the many heat waves that Arizona invariably sees each year," Tim Rusert, APS director of power supply services, said in a statement. "APS procures resource-backed capacity to cover our forecasted customer demand at peak and a substantial planning reserve margin. Customer demand is forecast at the higher end of temperatures that Arizona will likely encounter, so regional heat waves likely wouldn't exceed the temperature APS has planned for each summer. That is exactly the case this last week, where peak Phoenix temperatures were within the temperature we planned for peak customer demand."

Demand, supply response

The heat wave's effect on peakload demand has been felt in grids throughout the West.

Peakload in both the California Independent System Operator and Bonneville Power Administration have trended above year-before levels. CAISO expected its peakload to ease slightly July 10 but remain elevated at 45.31 GW July 11, and the BPA counterpart anticipated similar changes to 9.08 GW. CAISO and BPA peakload have moved more than 26% and 9% higher than values recorded the same period a year ago to average 40.76 GW and 8.13 GW, respectively, so far this month, according to CAISO and BPA data.

Amid great load expectations in the Pacific Northwest, generation imported into the CAISO service area has plunged since the beginning of July. CAISO power imports fell from 114.81 GWh a week before to negative-8.83 GWh July 9, indicating exports to neighboring regions like the Northwest.

Power pricing surge

Reacting to extensive heat and elevated demand, wholesale power prices continued to soar during July 10 trading on the Intercontinental Exchange.

In CAISO, NP15 on-peak for July 11 delivery rose about $45.50 from its previous settlement to trade near $123.50/MWh, and SP15 jumped $27.25 to $117.25/MWh. So far this July, NP15 has averaged about $56.75/MWh, climbing more than 41% from the same period a year ago, while SP15 has risen more than 35% above year-before levels around $49/MWh, according to CAISO data.

Similarly, the Northwest's Mid-C on-peak day-ahead saw a $24 increase to $136/MWh, and California-Oregon Border swung about $66.25 higher to $177.25/MWh. Further south, the corresponding Palo contract rose about $37.25 to $167.25/MWh, while Mona jumped nearly $98.75 to trade around $231.75/MWh. Over the month, Mid-C has averaged around $99.25/MWh, up more 19% on the year, while Palo leapt more than 47% year-on-year to average $85/MWh, according to S&P Global Platts data.

Looking ahead on ICE, the SP15 peak balance-of-the-week contract for July 12-13 delivery declined about $14.50 from its previous settlement to $65.75/MWh, while the next week's contract for July 15-20 delivery saw lower bid and offer levels between $40/MWh and $49/MWh. Likewise, the corresponding Mid-C package was valued between $50/MWh and $95/MWh, and Palo traded between $60/MWh and $90/MWh.