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CAISO: Summer Looks Good; Market, Prices Stable

April 7, 2008
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California's wholesale electricity situation looks good for this summer's peak-demand periods, but in the longer term the state's aggressive push to get more renewable resource-based power continues to worry the head of the California Independent System Operator (CAISO), Yakout Mansour. The CAISO CEO held a conference call with reporters last Monday to mark the release of the grid operator's annual market performance report, a newly approved five-year strategy and CAISO's 10th anniversary of operations.

CAISO's Market Monitoring Department assessed the health of the state's wholesale electricity markets as good, remaining stable and competitive, according to a report released last Tuesday. Although the average wholesale power price was up more than a dollar (2007 compared to 2006) congestion costs were down by more than $100 million, year-over-year.

The market report attributed much of 2007's good news to what it called a trend that is "predominately due to a high level of forward energy contracting by the state's investor owned utilities [IOU]," which it credited with limiting their exposure to the spot market price volatility, while "enhancing competition and facilitating new generation investment."

During the period of 2001-2007 since the western wholesale energy market meltdown, California has added nearly 15,000 MW of new generation (14,900 MW), permitting the retirement of 5,500 MW of older, more inefficient generation. Over the period a net increase of 9,400 MW was realized and CAISO projects another 1,800 MW this year.

Mansour said CAISO's long-anticipated Market Redesign and Technology Upgrade (MRTU) is essentially ready to go live, but it still needs detailed testing before launching sometime in the fall. The CEO acknowledged, however, that he is worried about getting new transmission built to access added renewable-based power.

In response to a question about his outlook on transmission development for renewables, Mansour said this is his "biggest worry. The transmission infrastructure has to grow, first to meet load growth, and then to integrate new resources, such as renewables. At the pace it is going right now, we cannot continue to expect to meet the renewable goals of 20% [2010] and 33% [2020].

"The process has to be more streamlined and more efficient, and frankly policymakers need to face the difficult tradeoffs if we want more renewables, which are not where the load is. A lot of the projects are away from loads by hundreds of miles. In is true anywhere around the country that when you have distances of hundreds of miles there is no way you are going to avoid having to cross national forests, national parks or Native American lands.

"So we have to face reality. These are the issues. But in facing reality we cannot take forever. This is the type of problem that if you don't have a solution at least five years ahead of the need, you will be out of time."

Investment in new transmission is critical, he said, noting that MRTU can help as can various demand response programs, but ultimately more new steel needs to be put in the ground. California is now "rewriting the book" on renewables and demand-side management and it has an impact not just for the state, but for the rest of the nation, Mansour said.

"There was a time when people were using California as an example of what not to do [in terms of an electricity infrastructure]; now going forward we are rewriting the book on how to do it right," he said.

Temperatures overall were milder last year, which helped overcome the shortage of hydroelectric supplies because of a severe drought. There were two major heat storms, but they occurred during holidays (Independence Day and Labor Day), which lessened their impact, the CAISO market report said. The single biggest impact on the electrical grid came during the Southern California wildfires (Oct. 21-25) that were unprecedented.

CAISO's market report indicated that the Comision Federal de Electricidad (CFE) helped the state avoid blackouts in the San Diego area by coordinating with the Mexican power grid in North Baja California, Mexico. CFE helped California "maintain reliable grid operations throughout the wildfire period," the CAISO report said.

"The average estimated cost of wholesale energy in 2007 was $48.82/MWh of load compared to $47.55 MWh in 2006," CAISO said, adding that the costs include forward scheduled energy, inter-zonal congestion, real-time imbalance energy, premiums paid for real-time out-of-sequence energy redispatch, net reliability-must-run, ancillary services, and grid operator-related costs (transmission, reliability and grid management).

What it called the most positive trend last year was the reduction in the intra-zonal congestion costs, dropping to $101 million last year, compared with $207 million in 2006.

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