The power market looks tight again for generation andtransmission this summer with some warnings of price spikes —particularly in the Midwest and California — and the situationisn’t likely to get much better over the next few years, accordingto power market executives.

Dynegy President Stephen W. Bergstrom has strong opinions aboutCalifornia, its need for more generation, and why there isreluctance on the part of players to step up and provide it. Heexpects the state to be about 10,000 MW short this summer. “We ranmore in the first quarter of this year with our [California]generation than we’ve run all last year in the wintertime. So we’restarting to see some signs of demand growth out there and no newplants being built as well.

“We’ve been telling the regulators in California for three yearsthat if you continue to hold price caps in California, people willnot build new plants out there, and you’re going to be short. Well,guess what. Now we’re getting calls from the governor and callsfrom the legislative guys in California saying, ‘Come out and talkto us. We’re really concerned about this short market in Californiathat we’re starting to see.'”

For the rest of the country, excluding the New England states,where so many generation projects are planned or under way that themarket will be — at least theoretically — long on generation,the power market by 2003 will be 60,000 MW short of peakingcapacity, Bergstrom said. That prediction assumes all the announcedplants outside of New England get built, no coal/nuclear plantshutdowns for four years, 3% annual demand growth and 15% reservemargin.

“Even if we’re off by 50% and it’s 30,000 MW instead of 60,000MW, it’s a significant number,” Bergstrom told attendees at theZiff Energy Group’s April North American Gas Strategies Conferencein Houston. “At 5% demand growth that’s 35,000 MW of new plant thatneeds to be built every year just to keep up with demand, let alonemake up for some of the shortfall for no plants being built in thelast three years.”

Dynegy plans to install 1,000 MW of generation this year andanother 1,600 to 1,800 MW next year. “So it takes 35 Dynegys, ifyou will, doing what we do, just to keep up with demand growth at a5% demand growth rate. So this is not something that can be easilysolved in a year or two. These are plants that take two to threeyears to build and develop, even if you get permits, so it’s asignificant issue.”

For this year the North American Electric Reliability Council’s(NERC) summer assessment still is in the works, and the season’sweather remains to be seen. But “in each of the last two years, theload versus capacity situation in ECAR was tight but manageable,and that’s what we’re expecting again in 2000,” said Brantley H.Eldridge, executive manager of the East Central Area ReliabilityCoordination Agreement. “Basically, at time of peak we’re expectingthe situation to be tight again in ECAR.” Over the last couple ofyears, the peak reserve margin in ECAR has gotten down to around 10or 11% when previously it was around 15%.

The Mid-America Interconnected Network (MAIN) expects to haveanother 2,900 MW of generation available this summer due to newplants and facility upgrades, said spokeswoman Jackie Olson.”Overall, we expect improved reliability over the next couple ofyears.” All of the region’s nuclear plants are expected to be online this summer. “We’ve been able to meet the peak demand over thelast several summers. [Some customers] have had to employ somedemand-side management efforts, but we’ve been able to meet peak,and we expect to be able to this summer.” The summer 2000 outlookfor MAIN differs from the reality of 1998 when a number of largenuclear plants were off line. However, the region’s summerassessment still is a week or two away.

NERC said its summer assessment won’t be available until thelatter part of May, and a spokesman would not comment on the summeroutlook for power shortages and price spikes. At least one powermarketing senior executive believes the nation wouldn’t be facinganother summer of tight power supplies if it had a fullyfunctioning competitive market. As things stand now, even withmyriad generation projects planned and in the works, tightness andprice volatility will remain with us for a few years, he said.

Bergstrom also is concerned with the function of IndependentSystem Operators (ISOs) and their setting of prices. Yes, ISOs arenecessary, he said, but they should function as traffic cops forthe transmission system, not market meddlers.

“We’re in the worst of all worlds today where we’ve got one footin regulation and one foot in deregulation trying to push thismarket in a period when we’ve got some supply-demand issues.

“We think [FERC] Order 2000 was a good try but probably won’twork, we think, because of the state-by-state issues that arethere. We’ve got to get the states committed to making this thinghappen. [Invester-owned utilities] must divest and removegeneration from the rate base, and the ISOs must focus on systemoperations and reliability.”

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