While reiterating the ever-tighter intertwining of electricity and natural gas, a major statewide energy assessment by the California Energy Commission released Monday predicted that the next three years should be free of any large risk of a return of the supply/price meltdown of two years ago. However, without an integrated approach that addresses a wide variety of energy, environmental and economic needs, the state could be back in a crisis mode by 2007.

In response to directives from a state law (SB 1389) passed last year, the state energy commission was designated to review state energy trends, forecast and analyze potential developments, and recommend new policies in collaboration with an alphabet soup of seven other state agencies with a stake in energy issues, ranging from the California Public Utilities Commission to the California Independent System Operator (CAISO). The initial product is a draft staff report, “Electricity and Natural Gas Assessment Report,” posted on the energy commission’s web site (www.energy.ca.gov).

“The growing electricity generation demand is, in turn, driving the increasing need for natural gas supplies throughout California,” the report said. “The role of natural gas in electricity generation impacts how the natural gas system must be designed and operated. Natural gas-fired generation has become the technology of preference.

“The interrelated nature of the electricity and natural gas systems also means that price fluctuations in the fuels market directly affect electricity costs. Natural gas demand now has two peak periods — summer and winter. The natural gas market has become more volatile with prices increasing in both the natural gas and electricity markets. Consequently, future decisions to build additional natural gas storage, gas pipeline capacity or a liquefied natural gas (LNG) terminal somewhere on the West Coast will affect what consumers pay for electricity.”

The report concludes that both electricity and natural gas will be available in sufficient quantities to meet foreseeable demand through 2006, but both commodities will draw much higher prices on average than they did in the 1990s. During this period California needs to craft a well-balanced energy and environmental policy that “provides sufficient resources.” Otherwise, beginning in 2007 Californians again could be subject to price and supply risks. “Acquiring additional resources must begin in 2004,” the draft report stated.

Currently there are six areas in which the state needs to upgrade or create new policy:

“In this report, we examine the current status and pressing issues which arise from linked issues in the electricity and natural gas markets,” the energy commission draft report said. Noting that the state from recent experience is well aware of the short-term risks of the linked gas and electricity markets, the study said nevertheless “there are long-term risks that need to be evaluated in developing a secure and affordable energy infrastructure.”

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