Summer outages loom despite state remedies

By Jeff McDonald STAFF WRITER

March 4, 2001

All that work and still so much worry.

Despite tapping some of the brightest minds in public policy and spending billions of dollars to repair damage from an ill-conceived drive to deregulate electricity, California remains in serious danger of running out of power once the days grow long and the sun climbs high.

To avoid summer blackouts more widespread than the ones that cut power to huge swaths of Northern and Central California in January, almost every remedy being pursued by lawmakers must run like clockwork.

And even if new power plants are brought online before temperatures rise, tremendous strains on the natural gas supply and delivery network promise fresh challenges to leaders of the Golden State.

"There are a lot of things that need to fall into place," said Claudia Chandler of the California Energy Commission, the state agency in charge of licensing new power plants. "It all kind of fits together."

Commission projections cite a potential shortfall of about 5,000 megawatts of electricity once air conditioners from the desert to the Central Valley kick into high gear. Air conditioning accounts for 30 percent of summertime power consumed in California.

Estimates are even worse from the Independent System Operator, the public corporation that manages most of the electric grid. It predicts shortages of more than 6,800 megawatts during peak summer periods.

Gov. Gray Davis adopted a multipronged strategy to emerge from the ruins of the 1996 legislation that started limited deregulation of the California electric industry.

Foremost, Davis seeks to add 5,000 megawatts of capacity to existing supplies by July. Much of that would come from adding to the system dozens of so-called peaker plants -- turbines that generate between 50 and 250 megawatts during periods of high demand. One megawatt is roughly enough power to supply 1,000 homes.

Among other things, the governor also announced a streamlined permitting process for new plants, restart efforts for idled generators, more investment in renewable energy sources and a huge conservation drive that he hopes will cut demand by up to 10 percent.

At the same time, Davis is negotiating long-term contracts to buy power at lower rates. He also wants to purchase transmission grids owned by debt-ridden utilities and may create a state power authority to help stabilize the wildly unpredictable electricity market.

But many analysts are skeptical that the fixes being forged in Sacramento will resolve the crisis before demand for electricity climbs to unmeetable levels.

"We're not going to get through summer without a lot of power outages," said Gary Ackerman of the Western Power Trading Forum, which represents energy brokers in Western states.

Any other stories "begin with 'Once upon a time' and end with 'lived happily ever after,' " Ackerman said.

California is by no means alone when it comes to predictions that electricity will be a rare commodity this summer.

Already, the Pacific Northwest is preparing for an impending shortage because scant winter rain has forced dam operators to draw down reservoirs that supply water to the turbines. That means the region will have fewer exports available for California when temperatures rise.

In the Northeast, energy officials also forecast a summertime demand that far outstrips supplies. Workers in New York City are scrambling to add 500 megawatts of capacity with a series of peaker plants.

But experts predict California will suffer much worse power problems than other states, despite steps taken by Davis and the Legislature to shore up supplies.

"We've changed none of the rules," said Robert McCullough, a Portland, Ore.-based energy consultant. "We didn't change the market failure. We've given the patient aspirin, but we've not taken him to the hospital."

The challenges of delivering electricity to this demanding and diverse state are many-fold.

Energy Commission analysts revised earlier estimates upward and now predict the state will need more than 61,000 megawatts of power to meet demand, based on usage during what would be the hottest year in a 10-year cycle.

That number includes a built-in reserve of 7 percent. But it also factors in expected plant outages that use the historical average of 3,050 megawatts of power taken offline when recent shutdowns are closer to 7,600 megawatts.

The commission's estimate also fails to include some 1,200 megawatts that grid operators saved by requiring large users to shut down during peak demand hours. The "interruptible" program is now voluntary because so many companies that had agreed to shut down in exchange for lower rates complained that business was suffering during the recent run of Stage 3 emergencies.

State analysts have identified enough sources to meet the governor's goal of adding 5,000 megawatts to the grid by July. But much of that power assumes factors that are optimistic at best.

For example, the plan includes some 2,133 megawatts from peaker plants even though there is an admitted shortage of turbines. Half the turbines identified by the commission are older and typically generate more air pollution.

Also troublesome for would-be generators is the difficulty in negotiating contracts with the state Department of Water Resources, which is spending $50 million or more on electricity every day.

State negotiators want to rewrite existing contracts, but some peaker-plant owners have so far resisted.

Emissions from peaker plants also would add to air-quality concerns, although Davis directed the California Air Resources Board to work with local clean-air officials to get around those roadblocks.

The Energy Commission's forecast also relies on 450 megawatts from an idled generator in Huntington Beach. But residents there are organizing to stop the effort, saying the plant would spew too much pollution into the air.

And ongoing disputes between California buyers and out-of-state generators could also undermine reliable power supplies this summer.

Despite the slew of such daunting challenges, the Davis administration maintains that the complicated recovery plan proposed by the governor will help the state find its way out of the deregulation mess.

"Nobody ever said this was going to be easy," Davis spokesman Roger Salazar said. "If it were easy and these were simple solutions, we wouldn't be in an emergency situation."

Some critics are not so enthusiastic, however.

Although promoting new power generation is an obvious help, measures such as buying the transmission grid or establishing a state power authority do not address the root causes of the crisis, they say.

Virtually nothing has been done to prevent generators from manipulating the electricity market to drive up prices, critics say. Some analysts blame timid politicians for clinging to rate freezes that insulate consumers from market vagaries.

"I know that it's been very unpopular politically, but exposing customers to the actual prices that prevail in the marketplace can help control demand," said Judah Rose, a Washington D.C.-based energy consultant.

"The inflexibilities that have been put into the system are now coming back to haunt California."

Wholesale electricity prices finally began dropping late last month, about the same time the ISO called off an unprecedented string of emergency warnings that supplies were so low that blackouts could occur at any time.

Wholesale costs recently were close to $200 per megawatt -- almost double the price from a year ago.

But the price relief is unlikely to last.

For the months of July, August and September, peak-demand megawatts were trading last week for as much as $360 an hour, said Richard Wheatley of Reliant Energy, which owns plants that generate 3,500 megawatts in California.

"You've got to have more supply on the ground," Wheatley said. "And even with the amount of supply the governor is hoping to have online by summer, it may not be enough."

Copyright 2001 Union-Tribune Publishing Co.

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-- Martin Thompson (mthom1927@aol.com), March 04, 2001