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California Sees Light at the End of a Very Dark Week

California Sees Light at the End of a Very Dark Week

As California kept its string of Stage One and Two power alerts going through most of last week, the plot in its now six-month-old drama thickened with an endless array of actors and subplots. Without a break for intermission, the spotlight shifted to federal officials in Washington, DC, late in the week for the second act of steps that might bring some order to the chaotic western wholesale electricity market covering about a dozen states.

"The FERC order is just the beginning of a whole set of processes and negotiations that will now move forward," said Kellan Fluckiger, COO of the California Independent System Operator (Cal-ISO), who noted there will be improvements for the grid operator's operations that should begin almost immediately and he expects that to continue. He noted that FERC underscored the need for long-term contracting and greatly increased generation capacity in the state, both of which he agrees with.

"But until we can full address the supply situation, we are going to be operating in tight markets," said Fluckiger, adding he doesn't see the added capacity being sufficient until the summer of 2003.He said he was unsure how much and when electricity prices would come down, but a lot will depend on what happens to wholesale natural gas prices.

The possibility of rolling blackouts hung around California like a coastal fog bank as state and federal officials tried to work out longer-term remedies that would allow the state grid operator to avoid its daily round of power alerts and near-emergencies that have typified the first two weeks of this month. California officials said by last Friday the state was "seeing benefits" of the order Dec. 14 by DOE Secretary Bill Richardson, prompting a "good response from a number of Pacific Northwest market participants, particularly Bonneville Power Administration."

"We expect to receive ongoing and sustained benefits from the DOE order now that it is actually issued. Its anticipation has been a significant help in bringing supplies to the state," said Fluckiger. On Friday, Cal-ISO officials were commenting that the state's power supply picture was looking "better than it has in quite a while." They expected to avoid more power alerts through the weekend.

As tempers and electrons remained short most of last week, a veritable Who's Who of the energy industry found their corporate names being taken in vain by federal and state officials, along with California's private sector utilities and vocal consumer watchdog groups that think avarice has replaced reasonableness among generators and marketers, most of whom have major national and regional reputations.

Internationally known power plant developer/operator AES Corp., Arlington, VA, settled with a regional air quality district this week, paying a record $17 million fine, for air emission violations at one of the three major former Southern California Edison Co. coastal plants the company now owns. The 2,000-MW Long Beach plant, although still in violation, received special exemptions that have allowed it to operate through the current crisis and it has not been part of the 11,000 to 8,500 MW of load that has been unavailable this week because of planned and unplanned outages.

Following an abatement order last September, AES curtailed about 2,000 MW of power in mid-November while it was working on a settlement with the South Coast Air Quality Management District, according to Aaron Thomas, a San Francisco-based manager for AES's Pacific Region operations. The power was brought back on line last week with an interim emissions permit.

"The settlement brings us back into compliance and allows the units to operate during the next six months while emission controls are being deployed so the plants will be available to help the grid through this continuing crisis period," said Thomas, noting that all 4,000 MW of AES's three plants should continue to be available. "We hope to have all of the emission control work done by the summer, preparing for another high-peak-demand period next year."

Other major national energy players were on a list of 13 western supplier/marketers who last Wednesday reportedly refused to sell into California until there were assurances given about the credit-worthiness of the state-chartered independent transmission grid operator, Cal-ISO, and the three investor-owned electric utilities. Several of those companies have issued statements denying they were refusing to sell into the state and thus bringing California to the brink of having to institute rolling blackouts Wednesday afternoon.

The list released by Gov. Gray Davis's office included: Dynegy Power Marketing; Trans Alta; Eugene (OR) Water and Electric; Southern Energy Trading; PowerEx (British Columbia Hydro); Public Service Company of Colorado; Enron Power Marketing; Portland General Electric; Avista (Washington Water Power); Idaho Power Company; PPL Montana; Seattle City Light; and Puget Sound Energy.

Dynegy's President/COO Steve Bergstrom said his company was "inadvertently" included on the list, noting Dynegy "is not withholding power from the California electricity market." Southern and Enron echoed these denials through spokespeople in Atlanta and Houston, respectively.

"There has been a misinterpretation of the list of the companies and the specific ones who expressed concerns about credit and/or withheld supplies from the state," said Patrick Dorinson, Cal-ISO's spokesperson. "There were concerns about the credit issue, but the list did not necessarily mean that all the firms were not sending any power to California because some of them were."

Late in the unfolding near-crisis Dec. 13, California's largest utility, Pacific Gas and Electric Co., applauded the work of state and federal officials to not only avert the need for rolling blackouts, but for emphasizing "the irreplaceable role that California's utilities have in powering the state's economy," a reference indirectly aimed at stemming the continuing negative views of the financial community toward the mounting debt, now more than $8 billion that the PG&E utility and Southern California Edison have taken on in the face of spiraling wholesale power prices they have been forced to pay since the summer.

Almost simultaneously also in San Francisco, the California Public Utilities Commission announced that it has revised a proposed action for its Dec. 21 business meeting to address "the extraordinary financial situation facing PG&E and Edison as a result of current problems in the wholesale electric market."

The CPUC and utility responses prompted the state's San Francisco-based utility watchdog group, The Utility Reform Network (TURN), to blast the prospect of regulatory relief, alleging that the CPUC was "caving into pressure from Edison and PG&E, who are complaining that they are going bankrupt despite rising corporate profits and billions in 'stranded cost' collections." TURN and other consumer groups asked Gov. Davis to "rein in" the regulators to keep them from "saddling the entire state with the back-breaking bill for the most expensive public policy mistake in history."

Richard Nemec, Los Angeles

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