Posted at 11:08 p.m. PDT Tuesday, May 1, 2001

Bay Area power outlook uncertain as few contracts are signed

Most of the power contracts are for Southern California BY STEVE JOHNSON Mercury News

California still hasn't signed contracts for more than a fraction of the power it needs for this summer, and the Bay Area will feel the brunt of the shortage. Most of the power officials have agreed to buy is for the southern part of the state.

In fact, some of that power may be sold out of state, officials say, because a major bottleneck in California's network of high-voltage lines could prevent them from sending the electricity north.

That could leave the Bay Area isolated. Much of the rest of the power it relies on comes from the Northwest, where a drought has reduced what is normally produced by the region's hydroelectric dams.

So far, the California Department of Water Resources has signed contracts with suppliers for less than 2,400 megawatts this year -- which is enough for about 1.8 million homes -- and it hopes to eventually sign up about 5,600 megawatts. Experts believe the state will have to find 20,000 megawatts to bolster other supplies during peak demand hours this summer.

Path 15 resistance

Although Northern California uses almost as much power as Southern California, about 73 percent of the electricity the department hopes to get under contract is coming from the southern part of the state, where the power is being generated. That's a problem for the Bay Area, because constraints in Path 15 -- the key high-voltage line linking California's southern and northern regions -- could make it impossible to ship that power here during emergencies.

``If they locked up a lot of contracts on the southern part and we need to push it to the northern part, it may look just like January again,'' said Armando Perez, director of grid planning for the California Independent System Operator, which manages the flow of power over most of the state. He was referring to the rolling blackouts that hit Northern California in January, which were caused in part by those transmission line limitations.

In an energy plan he gave state lawmakers Monday, Gov. Gray Davis mentioned the possibility that some of the electricity that the Department of Water Resources contracts for could be sold out of state. That possible scenario also was confirmed Tuesday by Viju Patel, executive manager of power systems for the water agency.

If the state finds itself with an overabundance of contracted power in the south and no way to ship it north, Patel said, it may try to sell it to municipal utilities in California or to buyers outside of the state. ``You don't want to hang on to it, because you'll pay for it'' and won't be able to use it, he said.

If it is sold out of state, the department hopes that it mostly happens when California doesn't need it, Patel said. But he added that some of it also might have to be exported when the Bay Area or other parts of California become critically short of power.

``It can happen at any hour,'' when transmission line constraints ``force you to do that,'' he said.

Patel's department earlier this year assumed responsibility for buying much of the electricity California needs, after the state's two biggest utilities -- Pacific Gas & Electric Co. and Southern California Edison -- developed severe financial problems. PG&E has since filed for bankruptcy. And although Gov. Davis hopes the state's planned purchase of Edison's transmission lines will keep that firm out of bankruptcy, no one knows for sure how long the the Department of Water Resources will have to keep buying power.

Extremely expensive

Because wholesale electricity purchased on the so-called spot market shortly before it is needed tends to be extremely expensive, the department has been trying to sign long-term contracts with power suppliers at more favorable rates.

On hot days, the state needs to come up with about 47,000 megawatts. About 8,000 megawatts should be available from power plants still operated by the utilities and nearly 12,000 more from wind, solar and other energy sources, although some of those have refused to sell in recent weeks, because of a payment dispute.

Davis is counting on consumers saving an additional 7,000 megawatts, by cutting back on electricity use. But that still leaves about 20,000 megawatts that the department will have to obtain on the spot market or through long-term contracts.

Patel said he believes suppliers have been reluctant to sign contracts, because they've already committed their power to others or because ``their strategy is to hold on to it,'' hoping to sell it to the state on the spot market for a better price.

But some power company officials contacted by the Mercury News expressed frustration with the state's seeming disinterest in the contract terms they had offered. Others said a recent downgrade in California's credit rating had made it harder for them to sign a deal.

``We got caught up with credit issues,'' said Catherine Parochetti, a spokeswoman with Avista Energy in Washington, noting that her firm recently stopped negotiating with the state over a potential power contract. Because of concerns about the state's financial status, the deal, she said, ``just sort of fell apart.''

Richard Wheatley of Reliant Energy in Houston said his company also has been negotiating with the water department for months, without success. He warned that the delay does not bode well for the state.

Definite shortages

``Californians definitely need some solutions and they need them sooner rather than later,'' Wheatley said. ``As you move closer to the summer months, it will be a situation where there will definitely be shortages.''

- Contact Steve Johnson at sjohnson@sjmercury.com or (408) 920-5043

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-- Martin Thompson (mthom1927@aol.com), May 02, 2001