Duke Offers Solutions to California's Power Shortfall
As the western states generally, and California in particular,
faced another blast of power-draining summer heat, Duke Energy
North America (DENA) last week proposed to California Gov. Gray
Davis a combination of long- and short-term new generation and a
five-year, fixed-price electricity option to buffer mass consumers
from electric price volatility.
With about $ 2 billion already or soon-to-be invested in the
state, Duke Energy obviously is looking to protect its investment
in the face of growing cries among consumer groups and state
officials to roll back California's electric restructuring.
In return, Duke is urging Gov. Davis to use his existing
authority under the state's emergency services provisions to
"streamline the permitting process to facilitate the rapid
construction of environmentally friendly generation" as early as
next year. Duke officials sent the request formally via a letter to
the governor and then met with the governor's staff in Sacramento,
a session Duke characterized as a "good first step."
Duke and other merchant operators contend the market isn't the
fundamental problem, but rather it is the insufficient supply of
generating capacity to meet peak-load situations that's to blame
this summer. It has now become a well-known mantra that "no
significant new power generation facilities have been built in
California over the past 10 years."
"During that same 10-year period, peak demand has risen more
than 10,000 MW," said Jim Donnell, CEO of DENA. "This combination
hascaused the state's reserve margin to fall to less than 2%, which
necessarily results in higher prices and abnormal volatility."
These reserve levels are the worst in the nation, according to
Indicative of the state dilemma is what happened last Monday
when the California Independent System Operator (Cal-ISO) declared
Stage One and Stage Two power alerts, noting that "an intense and
lengthy heat wave hitting the entire Western U.S. is shrinking
power reserves on a day when electricity is in huge demand." With
electricity in short supply across the 12-state region, California
cannot count on imports from out of state to help fulfill the
heightened demand. Cal-ISO on Monday was expecting a near-record
peak (45,629 MW).
To help solve California power crunch, Duke is proposing to
deliver 3,000 MW of added electricity through the construction of
new natural gas-fired power facilities at three existing sites
along the California coast that it has purchased or leased in the
last three years. This would include an additional 500 MW as early
as 2001 and a 2,500 MW by 2002, with an expedited state siting
The first 1,000 MW of the 3,000 MW, Duke officials said, should
begin construction in the next two to three months at its existing
Moss Landing power plant along the central coast.
With the momentum building among consumer and state officials to
roll back the state's four-year-old electric restructuring, Duke
officials still insist they are willing to hang in the state as
long as there is movement toward deregulation, although it noted
that recent state moves have caused them to pause. Duke's Donnell
in a national conference call assured questioners that Duke has "no
current plans to pull out of California," although he added that
there are concerns about outstanding proposals.
As a separate offering to the state --- not tied to the
expedited power-plant siting --- Duke has offered to provide 2,000
MW to the three investor-owned utilities in state on a fixed-term
of five years and fixed price of $50/MW, beginning Sept. 1.
"[We're] committed to help bring electricity price stability for
the citizens of California through these proposals," Donnell said.
"Essentially we're shifting the risk management responsibilities to
Duke Energy North America from the utilities and ultimately from
"I cannot imagine the circumstance that would see us take (any)
radical an action (pulling out of California). We stand prepared to
compete in the marketplace, and we encourage deregulation and we
think it is the right answer across the country. We realize there
will be some fits and starts, so as long as the market is headed
the right direction, we will continue."
Donnell did add that Duke seeks "regulatory stability," and
particularly an environment in which rules don't change in the
middle of a process. He suggested some of that is happening in
California, and if the rule changes and uncertainty continue, then
Duke would reassess its California situation.
Richard Nemec, Los Angeles