WSI Energycast Outlook Calls for Warm Summer from Great Lakes to Southeast

The monthly breakdown follows:

In June:

• Northeast – Warmer than normal, except for coastal New England
• Southeast – Warmer than normal, except for Florida
• N Central – Warmer than normal, especially ND/MN
• S Central – Cooler than normal
• Northwest – Warmer than normal
• Southwest – Warmer than normal

Effects in the Marketplace (written by ESAI)
WSI’s forecast for June indicates warmer-than-normal temperatures in the most market areas with the exception of New England and the South central region. Moderately warmer-than-normal temperature expectations during June should not have a significantly bullish impact on power prices, some increased price volatility may result due to the higher chance for an early season heat event. The warmer-than-normal temperatures in June will have a moderately bullish impact on gas prices, particularly because warmer weather in June may set up expectations of hot weather in July and August.

In July:

• Northeast – Warmer than normal, except for coastal New England
• Southeast – Warmer than normal, especially VA
• N Central – Cooler than normal, especially MN/ND
• S Central – Warmer than normal, except for OK/KS
• Northwest – Cooler than normal
• Southwest – Warmer than normal

Effects in the Marketplace (written by ESAI)
WSI’s forecast for July indicates warmer-than-normal temperatures in the key consuming areas for summer cooling demand – the Southeast, Southwest, South Central and most of the Northeast. On-peak electricity demand in these areas should be consistently higher under the warmer conditions, driving power prices higher as marginal costs increase to meet higher loads. An increased likelihood of major heat events results from the warmer outlooks for these areas. These heat events not only increase demand for cooling but they also stress mid-level units by requiring extended operations. This provides for an increased rate of forced outages, which is an additional bullish factor. Natural gas demand will be higher as a result of increased demand from power generators. If the weather in July stimulates very high gas demand, the ability of the market to inject enough volumes into storage to meet winter supply will be questioned by the market and will provide a bullish stimulus. Cooler temperatures in the Northwest and North Central states will not provide much offset to higher gas demand in the other regions.

In August:

• Northeast – Warmer than normal, especially PA/NY/NJ
• Southeast – Warmer than normal
• N Central – Warmer than normal, especially ND/MN
• S Central – Warmer than normal
• Northwest – Cooler than normal
• Southwest – Warmer than normal, especially AZ/NM

Effects in the Marketplace (written by ESAI)
WSI’s August forecast indicates warmer-than-normal temperatures in all regions except for the Northwest region. WSI notes that some areas could be subject to much warmer-than-normal temperatures, particularly the high load New York and PJM power markets. These areas will be subject to heat event exposure following a warmer-than-normal July, presenting concerns regarding generator availability due to higher levels of forced outages. Similar to July, increased natural gas demand will dampen injections to storage and cause concerns over winter inventory builds. This will be supportive for gas prices.

According to WSI seasonal forecaster Dr. Todd Crawford, “The latest runs of our forecast models indicate warmer temperatures in the eastern US and cooler temperatures in the Pacific Northwest this summer. The magnitude and spatial extent of the heat should increase as summer progresses, after a reasonably benign June.”

WSI successfully predicted (1) the cold and snowy winter of 2004-05 in the Northeast, (2) the mild November 2004 in the northern US, and (3) the unusually cold January 2004 in much of the eastern US. Their three-month seasonal forecasts have been skillful for 8 out of the last 12 periods. A skillful seasonal forecast is defined as one that is closer to what is actually observed than a forecast using the 30-year average temperature.

WSI, which provides customized weather information to energy traders, issues its Seasonal Outlook twice monthly. The next forecast update for June-August will be issued on May 26, with the next new forecast package (for July-September) issued to clients on June 14 and to the press on June 21.

About WSI
WSI Corporation is the world's leading provider of weather-driven business solutions for professionals in the energy, aviation, and media markets, and multiple federal and state government agencies. WSI is headquartered in Andover, Massachusetts with offices in Birmingham, England, and is a wholly owned subsidiary of Landmark Communications. More information about WSI can be found at www.wsienergycast.com.

About ESAI
Since its inception in 1984, Energy Security Analysis Inc. (ESAI) has been dedicated to monitoring, analyzing, and synthesizing information about world-wide energy markets. Tapping the talents of its senior-level staff, ESAI provides clients with unparalleled insight into where the markets have been and where they are headed. ESAI provides ongoing systematic analysis of energy prices in the oil, natural gas, and energy markets. For more information on ESAI services, see www.esai.com.