NGI The Weekly Gas Market Report / NGI All News Access

Gas-Fired California Generation Monitors Milestones

California's generation sector reached three major milestones at the start of April, all of which could have an impact on future fuel loads and generation operations in the nation's most populous state: grid operators gained a new day-ahead market, climate change scientific impact assessments were released and a U.S. Supreme Court decision offered some solace for the state's proliferation of coastal, sea water-cooled generation plants.

After eight years of starts and stops, the California Independent System Operator (CAISO) with quiet efficiency last Wednesday launched a redesigned, real-time grid balancing market and accompanying technology upgrade. Some $200 million later, day-ahead trading began under CAISO's Market Redesign Technology Upgrade (MRTU) that kicked in on schedule at midnight last Tuesday.

"It was as smooth as can be expected," said Ellen Wolfe, a consultant for the MRTU transition process for the Western Power Trading Forum, whose members include most of the major participants in CAISO's grid operations. "All in all, I would say the transition in its entirety is going well."

From other comments by Wolfe, however, it may take a while -- years, perhaps -- to sort out all the bugs to the satisfaction of all the participants. In the meantime, CAISO is expected to be able to "keeps the lights on" without reaching perfection on all of the behind-the-scenes transactions.

Southern California Edison Co.'s Director of Energy Supply Management Kevin Cini said the utility was "pleasantly surprised," and he echoed Wolfe's assessment that the transition went "very well, better than expected." Cini said it would be premature to come to any long-range conclusions.

Edison also had a reaction to the U.S. Supreme Court ruling putting to bed the long-running dispute between utilities and environmental advocates over power plant cooling water intake structures. The court said last Wednesday that the U.S. Environmental Protection Agency (EPA) can run a cost-benefit analysis to determine the best technology for mitigating the environmental impact rather than simply selecting the best technology available (see related story).

Saying it now appears the industry has prevailed, the spokesperson said his utility's experience at its coastal San Onofre Nuclear Generating Station (SONGS) with comprehensive, $86 million mitigation projects like its San Clemente reef and Del Mar wetlands work along the Southern California coast "fully mitigate any impact on marine life and at a cost to customers that is reasonable rather than prohibitive."

A third milestone came last Wednesday when the California Climate Action Team (CAT) released a draft report predicting "severe and costly" impacts across the state without fast and comprehensive action as outlined in the implementation plans for the state's 2006 Global Warming Solutions Act (AB 32).

Specifically in the energy sector, the impacts of climate change and projected mitigation are profound. Electricity demand is projected to grow by greatly varying amounts depending on the scenario and the research in the CAT report, which looked at a half-dozen different scenarios. The CAT report pulled together 37 of 40 research papers written by what Gov. Arnold Schwarzenegger called "world-class scientists" from various universities and research institutions.

"On average statewide electricity demand in the residential sector would increase by about 7% in the next few decades beyond that of anticipated population growth alone," the report said. "By the end of the century, demand would increase by 20% in one scenario and by 50% in another. These changes represent substantial impacts to California's residents and an added stress to the predominantly gas-fired electricity generating sector."

The impact on power generation, the report noted, will include hydroelectric systems operated by several utilities. Hydro account for up to 15% of the state's power load, particularly in peak-demand situations. Impacts on hydro in turn impact the gas sector that makes up more than 40% of the power supplies used in the state.

"Extreme events from heat waves, floods, droughts, wildfires and bad air quality are likely to become more frequent in the future and pose serious challenges to Californians," the authors concluded in articulating the report's major findings. "They pose growing demands on individuals, businesses and governments at the local, state and federal levels to minimize vulnerabilities, prepare ahead of time, respond effectively and recover and rebuild with a changing climate and environment in mind."

Perhaps softening climate change's impact on the sector, CAISO ideally sees its finally launched MRTU as making the California grid controlled by the state's three major private-sector utilities "more high-tech, friendlier to diverse resources and sending key signals for when and where to expand infrastructure." When operating as designed, the new market should bring "increased grid and market efficiencies, reduced barriers to alternative resources, such as demand response and renewables, and giving gird operators new tools for managing transmission bottlenecks and dispatching the least-cost power plants," CAISO said.

CEO Yakout Mansour called the launch "a big moment" for more than CAISO. Noting it was a collaborative process with stakeholders, Mansour said the state now has a "modern" grid that should be more reliable, flexible and intelligent.

©Copyright 2009 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.