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CA Barely Avoids Blackouts; ISO Files Emergency Amendment with FERC

CA Barely Avoids Blackouts; ISO Files Emergency Amendment with FERC

The nation's energy spotlight continued to glare unrelentingly on California's electricity market as it narrowly avoided the need for rolling blackouts last week, and now the state's energy officials are left holding their collective breath this week, watching weather, supply, price and regulatory indicators.

An ill-fated combination of factors put the state's power system in jeopardy and a combination of solutions is being feverishly addressed by everyone from the governor through the complex confederation of utility, merchant generators and marketers that comprise the state's 50,000 MW, $30 billion electricity market.

Faced with another stage two electrical emergency by mid-afternoon on Friday, the state's power grid operator, Cal-ISO, filed for and received approval from FERC on an emergency tariff amendment that implements a $250 "soft cap" on its Real-Time Energy Market similar to what was proposed by FERC in its Nov. 1 order Proposing Remedies for California Wholesale Electric Markets. "Energy bids prices in excess of $250/MWh will no longer be rejected by the ISO's computerized scheduling system but, instead, will be evaluated in price merit order," the ISO said. Cal-ISO said it was prompted to take the action in the face of "a critical shortage of bids as well as a serious under-scheduling of electricity in the forward markets." The Cal-ISO needs help in order to better compete for its real-time supplies of power in the increasingly tight Western market. The $250 price cap in Ancillary Service capacity bids is unaffected, however.

At least one energy company and a consumer advocate were suggesting Friday that Gov. Gray Davis declare an energy state of emergency due to the combination of electricity supply/price problems and record-high natural gas prices, urging that the state, in effect, take control of California's mostly privately--- owned energy infrastructure.

Also amid the extraordinary efforts being made to keep the power and gas flowing is the question of who ultimately is going to pay for California's expanding energy crisis --- utility shareholders, consumers or merchant power generator/marketers? Attempts by the state's two major utilities to put rate increases in effect Jan. 1 to cover the more than $5 billion in uncollected wholesale power costs was rebuffed last Thursday by the president of the California Public Utilities Commission. Commissioner Loretta Lynch suspended the utility appeals, calling them "premature" and reemphasized that the regulators are continuing to keep in effect a retail electric rate freeze.

The major factors bringing to a head the state's well-known energy woes that have continued since mid-year include: in-state generation shortages caused by a combination of planned maintenance deferred from earlier crunch times in the summer, unplanned outages for a variety of reasons, but some related to power units running out of air emission credits; and some bottlenecks and breakdowns of the transmission infrastructure. Out-of-state power limitations caused by weather-related soaring demand in surrounding states is another cause, and it was getting more critical in the Pacific Northwest Friday.

Added to these factors is the gas supply/price squeeze that led to record spot prices at the PG&E Citygate on Friday of more than $60/MMBtu and the overall the prospect of a major cold front sweeping down from Canada over the mid-section of the U.S. this week.

"Since [last] Monday, each day our state's electrical system has been on the verge of collapse," said Stephen Baum, CEO of San Diego-based Sempra Energy, in a letter last Thursday to Gov. Davis seeking emergency relief from the state and federal governments. "Next week, conditions may worsen when a severe cold front is expected to hit the Western United States. I am sure you agree, this is an intolerable situation."

Friday there were indications that some of the initial emergency measures taken by state energy officials were beginning to free up extra megawatts for California's peak hours of electricity demand, which still were shy of the state's all-time cold weather level of nearly 35,000 MW. (Projected peaks Friday and over the weekend were expected to be at the 32,000 MW or below.)

The move by the Cal-ISO late Thursday declaring an unprecedented Stage Three alert had its desired effect, according to state officials, because it freed up power from both the state's massive water resources department that is a huge electricity consumer for water pumping uses and the regional Western Area Power Administration (WAPA). The usual rolling blackouts on a controlled basis that accompany a three-level alert were not activated, however.

"We pulled the trigger (of a Stage Three) to protect California's grid system and the larger regional system, too," said Patrick Dorinson, a Cal-ISO spokesperson.

In addition, work by California's air emission regulators with regional air quality boards in Southern California early Friday freed up 700 of the 2,000 MW that had been idled because of a shortage of air emission credits. However, Pacific Gas & Electric Co. 1,067 MW Diablo Canyon Unit 2 Nuclear plant was being shut down for scheduled maintenance over the weekend and the ISO was forced to declare another stage two emergency on Friday. Diablo is expected to restart late Monday.

Sempra's Baum specifically asked Gov. Davis to use his emergency powers to "direct air districts to temporarily lift emissions limits for in-state power plants and thus put back into operation plants that have recently suspended operations because they have met or exceeded their air-emission limits," along with directing FERC-regulated merchant generators "to heed directives to operate their power plants when directed (to do so) by the Cal-ISO."

The current complex predicament plaguing the nation's most populous state is due to its failure to build new power generation plants inside the state and to the near-record demand (around 45,000 MW for private sector utilities). Existing power plants were run full tilt for longer than normal periods this summer and have required significant down time recently for maintenance. In addition, the longer than expected operating period for many plants this summer has left operators short on necessary emission credits, and about 2,300 MW in Orange County was shut down as a result.

Further complicating the situation, much of the power at this time of year comes from natural gas-fired units, and the prices and availability of natural gas have become major stumbling blocks, too. Later this winter and longer term, the prospects for the natural gas supply and infrastructure in California not being able to keep up with power demand is looming larger. (see related item this issue.)

In declaring the Stage Three at 5:15 p.m. PST Thursday (which is just before winter electrical peaks that hit in the 6-7 p.m. time frame) the Cal-ISO was just 34 minutes ahead of the day's peak demand, Dorinson said. By 7:30 p.m., the independent grid operator was able to discontinue the three-level alert.

Stage Three alerts are required when it is projected the state's grid reserves will fall below 1.5% as called for in reliability standards outlined in California's 1996 electricity law that created the Cal-ISO and its sister organization, the state-chartered wholesale spot power market called the California Power Exchange (Cal-PX). Blocks of customers of the state's three major private sector utilities are alternately curtailed with no individual warning for periods of time, usually 20-minute increments.

California energy officials declared power alerts the first four days of last week as statewide electricity reserves regularly threatened to dip below 7%, 5% and ultimately 1.5% in the face of near-record cold-weather power demand and more than 11,000 MW out of service, the majority of which were on an unplanned basis. Part of the unplanned loss of generation capacity was attributed to air emissions credits running out.

Ironically, last Wednesday the California Energy Commission, the agency responsible for approving all new power plants of 50 MW or larger capacity, approved three short- and long-term new generating plants totaling 871 MW, but it also further delayed as "data inadequate" a revised, two-year-old proposal by Duke Energy to modernize its Morro Bay power plant into a totally new 1,200-MW facility. Calpine Corp., the merchant generator in San Jose, CA, at the same time dropped the last of its five or six proposed temporary peaking generation plants and now has none proposed to help next summer when another major supply crunch is expected.

FERC Eyes Final CA Solution

FERC announced Friday it will hold a special meeting at 10 a.m. on Dec. 15 to consider a final rule for remedying California's dysfunctional bulk power market. In early November, the Commission proposed a series of potential cures --- focusing primarily on correcting regulatory and structural design flaws within the California ISO and Power Exchange [EL00-950]. However, it refused to grant the state's customers retroactive refunds, a move that raised the ire of California Gov. Gray Davis. The Commission also proposed a "soft" cap of $150/MWh on power sales into the Cal-ISO and PX, which drew heavy criticism from marketers.

Richard Nemec, Los Angeles

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