The nation’s energy spotlight continued to glare unrelentinglyon California’s electricity market as it narrowly avoided the needfor rolling blackouts last week, and now the state’s energyofficials 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 systemin jeopardy and a combination of solutions is being feverishlyaddressed by everyone from the governor through the complexconfederation of utility, merchant generators and marketers thatcomprise the state’s 50,000 MW, $30 billion electricity market.

Faced with another stage two electrical emergency bymid-afternoon on Friday, the state’s power grid operator, Cal-ISO,filed for and received approval from FERC on an emergency tariffamendment that implements a $250 “soft cap” on its Real-Time EnergyMarket similar to what was proposed by FERC in its Nov. 1 orderProposing Remedies for California Wholesale Electric Markets.”Energy bids prices in excess of $250/MWh will no longer berejected by the ISO’s computerized scheduling system but, instead,will be evaluated in price merit order,” the ISO said. Cal-ISO saidit was prompted to take the action in the face of “a criticalshortage of bids as well as a serious under-scheduling ofelectricity in the forward markets.” The Cal-ISO needs help inorder to better compete for its real-time supplies of power in theincreasingly tight Western market. The $250 price cap in AncillaryService capacity bids is unaffected, however.

At least one energy company and a consumer advocate weresuggesting Friday that Gov. Gray Davis declare an energy state ofemergency due to the combination of electricity supply/priceproblems and record-high natural gas prices, urging that the state,in effect, take control of California’s mostly privately— ownedenergy infrastructure.

Also amid the extraordinary efforts being made to keep the powerand gas flowing is the question of who ultimately is going to payfor California’s expanding energy crisis — utility shareholders,consumers or merchant power generator/marketers? Attempts by thestate’s two major utilities to put rate increases in effect Jan. 1to cover the more than $5 billion in uncollected wholesale powercosts was rebuffed last Thursday by the president of the CaliforniaPublic Utilities Commission. Commissioner Loretta Lynch suspendedthe utility appeals, calling them “premature” and reemphasized thatthe regulators are continuing to keep in effect a retail electricrate freeze.

The major factors bringing to a head the state’s well-knownenergy woes that have continued since mid-year include: in-stategeneration shortages caused by a combination of planned maintenancedeferred from earlier crunch times in the summer, unplanned outagesfor a variety of reasons, but some related to power units runningout of air emission credits; and some bottlenecks and breakdowns ofthe transmission infrastructure. Out-of-state power limitationscaused by weather-related soaring demand in surrounding states isanother cause, and it was getting more critical in the PacificNorthwest Friday.

Added to these factors is the gas supply/price squeeze that ledto record spot prices at the PG&E Citygate on Friday of morethan $60/MMBtu and the overall the prospect of a major cold frontsweeping down from Canada over the mid-section of the U.S. thisweek.

“Since [last] Monday, each day our state’s electrical system hasbeen on the verge of collapse,” said Stephen Baum, CEO of SanDiego-based Sempra Energy, in a letter last Thursday to Gov. Davisseeking emergency relief from the state and federal governments.”Next week, conditions may worsen when a severe cold front isexpected 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 emergencymeasures taken by state energy officials were beginning to free upextra megawatts for California’s peak hours of electricity demand,which still were shy of the state’s all-time cold weather level ofnearly 35,000 MW. (Projected peaks Friday and over the weekend wereexpected to be at the 32,000 MW or below.)

The move by the Cal-ISO late Thursday declaring an unprecedentedStage Three alert had its desired effect, according to stateofficials, because it freed up power from both the state’s massivewater resources department that is a huge electricity consumer forwater pumping uses and the regional Western Area PowerAdministration (WAPA). The usual rolling blackouts on a controlledbasis that accompany a three-level alert were not activated,however.

“We pulled the trigger (of a Stage Three) to protectCalifornia’s grid system and the larger regional system, too,” saidPatrick Dorinson, a Cal-ISO spokesperson.

In addition, work by California’s air emission regulators withregional air quality boards in Southern California early Fridayfreed up 700 of the 2,000 MW that had been idled because of ashortage of air emission credits. However, Pacific Gas &Electric Co. 1,067 MW Diablo Canyon Unit 2 Nuclear plant was beingshut down for scheduled maintenance over the weekend and the ISOwas forced to declare another stage two emergency on Friday. Diablois expected to restart late Monday.

Sempra’s Baum specifically asked Gov. Davis to use his emergencypowers to “direct air districts to temporarily lift emissionslimits for in-state power plants and thus put back into operationplants that have recently suspended operations because they havemet or exceeded their air-emission limits,” along with directingFERC-regulated merchant generators “to heed directives to operatetheir power plants when directed (to do so) by the Cal-ISO.”

The current complex predicament plaguing the nation’s mostpopulous state is due to its failure to build new power generationplants inside the state and to the near-record demand (around45,000 MW for private sector utilities). Existing power plants wererun full tilt for longer than normal periods this summer and haverequired significant down time recently for maintenance. Inaddition, the longer than expected operating period for many plantsthis 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 thistime of year comes from natural gas-fired units, and the prices andavailability of natural gas have become major stumbling blocks,too. Later this winter and longer term, the prospects for thenatural gas supply and infrastructure in California not being ableto keep up with power demand is looming larger. (see related itemthis issue.)

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

Stage Three alerts are required when it is projected the state’sgrid reserves will fall below 1.5% as called for in reliabilitystandards outlined in California’s 1996 electricity law thatcreated the Cal-ISO and its sister organization, thestate-chartered wholesale spot power market called the CaliforniaPower Exchange (Cal-PX). Blocks of customers of the state’s threemajor private sector utilities are alternately curtailed with noindividual warning for periods of time, usually 20-minuteincrements.

California energy officials declared power alerts the first fourdays of last week as statewide electricity reserves regularlythreatened to dip below 7%, 5% and ultimately 1.5% in the face ofnear-record cold-weather power demand and more than 11,000 MW outof service, the majority of which were on an unplanned basis. Partof the unplanned loss of generation capacity was attributed to airemissions credits running out.

Ironically, last Wednesday the California Energy Commission, theagency responsible for approving all new power plants of 50 MW orlarger capacity, approved three short- and long-term new generatingplants totaling 871 MW, but it also further delayed as “datainadequate” a revised, two-year-old proposal by Duke Energy tomodernize its Morro Bay power plant into a totally new 1,200-MWfacility. Calpine Corp., the merchant generator in San Jose, CA, atthe same time dropped the last of its five or six proposedtemporary peaking generation plants and now has none proposed tohelp 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’sdysfunctional bulk power market. In early November, the Commissionproposed a series of potential cures — focusing primarily oncorrecting regulatory and structural design flaws within theCalifornia ISO and Power Exchange [EL00-950]. However, it refusedto grant the state’s customers retroactive refunds, a move thatraised the ire of California Gov. Gray Davis. The Commission alsoproposed a “soft” cap of $150/MWh on power sales into the Cal-ISOand PX, which drew heavy criticism from marketers.

Richard Nemec, Los Angeles

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