http://www.contracostatimes.com/news/stories_news/grid_20010710.htm Published Tuesday, July 10, 2001

Grid is being pushed too far, analysts warn By Rick Jurgens TIMES STAFF WRITER --------------------------------------------------------------------------------

Gov. Gray Davis' visit to Pittsburg on Monday to start Calpine's new gas-fired power plant highlighted the state's scramble to avert summer blackouts by squeezing megawatts out of the fleet of generators in California and other western states.

But while successful so far, running the electricity infrastructure at full bore raises the risk of an even more calamitous collapse, according to a report issued late last month by the Electric Power Research Institute, a Palo Alto organization funded by investor- and government-owned utilities.

"Critical equipment -- such as large transformers -- on overloaded lines will be running at maximum capacity," according to "The Western States Power Crisis: Imperatives and Opportunities."

"The failure of a single such critical component could result in unplanned outages that might cascade throughout the Western Region, similar to the multi-state outages of July and August of 1996."

That July blackout plunged 2 million customers into darkness, while the August blackout in the midst of a heat wave left 7.5 million people throughout the West without power for up to seven hours.

The institute's report warns that despite those outages and additional demands on the electricity infrastructure from the growth of region-wide electricity trading, transmission line owners have failed to invest in new lines to carry power over long distances. In addition, "routine maintenance and upkeep of transmission equipment has been significantly reduced over the past decade," the report says.

That has left the West with a big backlog of work.

"The estimated cost of bringing the regional transmission system back to a stable condition is $10 billion to $30 billion, to be spent over the next 10 years on new transmission lines and upgrades of existing facilities," although new technologies could trim that spending some, according to the report. Despite the need for such investment, the analysts warn, there is a "lack of adequate financial incentives for investment in the underlying infrastructure and (a) lack of alignment between 'who pays and who gains.'"

California's electricity industry makeover has worsened the problem, according to Brent Barker, the Electric Power Research Institute's corporate communications manager. "With restructuring, the responsibility has been left hanging," he said. "There's a vacuum right now."

More dollars won't do the job alone, warned Mark Stultz, public affairs vice president for the Electric Power Supply Association, a Washington, D.C., organization of generating companies. To clear the way for effective investment, he said, federal regulators must have the authority to use eminent domain -- take private property for transmission line rights of way and other public purposes.

But addressing the transmission investment problem won't be easy, warned Severin Borenstein, executive director of the UC Berkeley Energy Institute. "Every transmission line has huge competitive ramifications," helping some power plant owners and hurting others, he said.

Still, power plant builders are pushing ahead. "California is building its way to total energy self-sufficiency," the governor said in Pittsburg.

New technology could also aid that effort, enabling generating capacity to be added more cheaply by upgrading existing plants than by building new plants, the report said. Up to 5,100 megawatts -- more than nine times the capacity of Calpine's new $350-million, 555-megawatt plant -- could be added with an investment of only $460 million in upgrades, according to the institute's report. Fully 700 megawatts could come from spending only $2 million to change timber harvest laws to ensure a steady supply of wood chips to fuel generators, it said.

The report criticizes California and other states that responded to a 1992 federal law encouraging electricity restructuring. They "failed to provide sufficient incentives to build needed generation facilities, increase transmission grid capacity and provide customers with better ways of managing their electricity usage," the report said. Wholesale competition was separated from retail competition, while developing a competitive wholesale electricity market presents "a significant technical challenge that has generally been overlooked by policy makers," it added.

Stultz of the Electric Power Supply Association said California created many of its own problems. "The wholesale market has shown itself to (be) adaptive in other regions of the country."

The report also warns against depending too much on a single fuel, natural gas, that faces growing demand and will remain expensive. "California is on the verge of an overreliance on natural gas," it said. "If all the planned additions are built, well over half of California's generation will be gas-fired, compared with about 30 percent now."

"We may be setting up the next energy crisis down the road," Barker warned.

To avoid future problems, the report calls for "a coordinated planning mechanism ... to ensure adequate investment in generation, transmission and load (demand) management" and to design power markets. It also calls for the creation of an "independent institution/agency ... to perform periodic assessments of the performance of the infrastructure, markets and their interface."

But Stultz emphasized unleashing market forces. "The way to address the situation in the future is to embrace competition, not to shy away from it," he said.

Rick Jurgens covers energy and the economy. Reach him at 925-943-8088 or at rjurgens@cctimes.com.

-- Martin Thompson (mthom1927@aol.com), July 10, 2001