Cooler weather leaving state with surplus of power

SUDDEN GLUT: Turnaround leaves regulators skeptical

David Lazarus, Chronicle Staff Writer

Saturday, June 9, 2001, ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/09/MN207328.DTL&type=news

California faces something it could scarcely have imagined a week ago -- an electricity glut.

With mild weather driving down power demand and newly replenished reservoirs pumping out hydroelectric megawatts, dozens of gas-fired plants throughout the state were shut down or running at minimal levels yesterday because their output was unnecessary.

"The plants aren't online and there are no blackouts," said Jack Farley, president of Reliant Energy's Western operations. "Obviously, they're not needed." Farley and other industry executives hailed the turn of events as evidence that California's energy market is not broken. But a key state regulator reacted with skepticism over the timing of the electricity surplus.

"It's too soon to tell how the market is going to go," said Loretta Lynch, president of the state Public Utilities Commission. "And it's not lost on me that prices have dropped in the same week that Congress is considering price caps."

Lynch's cautious reading of the situation was shared by some consumer advocates, who say a prolonged hot spell could drastically change the picture. Still, increasingly aggressive conservation efforts on the part of California consumers and businesses have steadily pushed down electricity demand in recent months.

The California Energy Commission charted a 10 percent drop in May and said the downward trajectory appears to be continuing. "Peak demand has consistently declined," said Claudia Chandler, the commission's assistant executive director.

Yesterday also saw good news on the natural gas side of the power equation when the price in some California markets plummeted almost 50 percent over a 24-hour period to the lowest level in more than a year.

The sudden electricity glut, meanwhile, has idled plants from one end of the state to the other. Reliant Energy, for example, shut down four California generating facilities capable of producing nearly 700 megawatts yesterday, or enough power for about 700,000 homes.

Other electricity producers with plants idled or throttled down included AES, Duke Energy and Pacific Gas and Electric Co., according to data provided by the California Independent System Operator, which oversees the state's power network.

There are more than 1,100 power plants statewide, and it was unclear yesterday exactly how many were operating at full throttle.

'FUNCTIONING WHOLESALE MARKET'

"What this shows is that California has a functioning wholesale market," said Gary Ackerman, executive director of the Western Power Trading Forum, an energy-industry association.

Not everyone would agree, of course, that California's wholesale electricity market is a model of efficiency. In a meeting Thursday with Chronicle editors and reporters, Gov. Gray Davis declared that "this marketplace is totally dysfunctional." Nevertheless, the governor also acknowledged that California "is definitely turning a corner." "We've basically won the war," he said.

With electricity now cheaper than at any time since April 2000 and natural gas prices well off earlier highs, a stability has returned to California's energy markets unseen since the current crisis erupted last summer.

But most energy experts say it is too soon to announce that the state's troubles are behind it, because a prolonged heat wave could change everything. Industry officials say this is the first time in a year that California's energy markets are behaving in what appears to be a rational manner. "All our plants are available if needed," said Reliant's Farley. "But they're just not needed."

COOL WEATHER A FACTOR

Indeed, electricity demand is well below expected levels because unusually cool weather throughout the West has reduced the need for air conditioning. This eases the load on power plants, which, in turn, slashes demand for the natural gas that fuels most facilities.

Gas prices were hovering near $3.50 per million British thermal units in Southern California yesterday, compared with $10 at the end of last month. Decreased demand for gas has allowed utilities to build their inventories, which will alleviate shortages when power demand inevitably rebounds.

Most analysts thus expect electricity prices to remain stable for the near future. In the longer term, however, it's anyone's guess. "The market is working the way it's supposed to work because the demand isn't there," said Ed Blackford, manager of AES' Huntington Beach power plant, which was operating at reduced levels yesterday.

E-mail David Lazarus at dlazarus@sfchronicle.com.

©2001 San Francisco Chronicle Page A - 1

-- Swissrose (cellier3@mindspring.com), June 09, 2001

Answers

With these wild swings, one wonders whether there is any reliability left in the basic infrastructure, and when the other shoe will drop. Swissrose.

-- Swissrose (cellier3@mindspring.com), June 09, 2001.

The other shoe will drop come the dog days of summer, July through September. An abnormal cool snap, this time of year, is not unusual, and drops electricity demand way down, temporarily, at least.

-- Chance (fruitlooops@hotmail.com), June 09, 2001.