Monday, September 11, 2000 | Print this story

September 'a Critical Time' for Overtaxed Power Grid Electricity: With supplies from Northwest falling, a hot spell could cause outages.

By CHRIS KRAUL, Times Staff Writer

With California's precarious electricity system stretched to the breaking point and facing enormous risks ahead, the state's steamy summer energy crisis is far from over. A hot September could crack the power grid, as could taking down one more overworked power plant for maintenance. The declining supply of out-of-state power available also has the industry on edge, as does a looming natural gas crunch.

Experts such as Stanford professor Blake Johnson look at prevailing conditions and warn that system reliability is a crucial question before California's troubled electricity market. Can the state's power grid keep the lights on? "That's issue No. 1. The system is at capacity. You are essentially using every piece of power generation asset you've got. If anything significant goes down, you are susceptible to shortfalls," Johnson said. Anjali Sheffrin, chief market analyst at the California Independent System Operator, the electricity traffic cop and transmission manager for 75% of the state, described September as "a critical time" for the state's power grid. Indeed, signs abound that the state is more vulnerable than ever to a systemwide electricity crisis, despite unseasonably cool weather that so far this month has eased pressure on California's overstressed power grid.

* National forecasts say Southern California, southern Nevada and western Arizona have the highest probability of any U.S. region of having higher-than-normal temperatures for the remainder of this month. September is historically the third-hottest month, after July and August, and even a bump of a degree or two above normal could pump up air conditioner usage and keep electricity demand high. * Last Monday, the state's taxed-to-the-max electric grid took a hit when one of Pacific Gas & Electric's two Diablo Canyon nuclear reactors went down for unscheduled maintenance, depriving the state grid of 1,100 megawatts of electricity, or 2.5% of capacity. The unit won't be back online for at least another week. The other Diablo generator is scheduled to go offline in early October for scheduled maintenance. Other major power plants in the state, which have been kept running full-time over the summer because of the crisis, will shut down for maintenance in coming weeks, leaving the grid perilously short of capacity. * Also ominous is that the availability of hydroelectric power from the Northwest continued to decline over the summer, because of electricity demand growth of 7% in some parts of the region and because of diminished generation capacity resulting from runoffs of reservoir water to aid endangered salmon. Fires in Montana have further cut hydro shipments because they have interrupted transmissions of electricity from western Montana hydroelectric facilities, said Jim Detmers, the Independent System Operator's managing director of operations. Mike Zenker, Western energy director at Cambridge Energy Research Associates in Oakland, said: "We are getting half of the hydro power from the Northwest that we got last year at this time. Because of the load [demand] growth we have seen in the West, the excess hydro capacity we have come to rely on has simply dried up." * Natural gas prices are at 10-year highs. Any further increases, which some analysts anticipate, would put added pressure on wholesale electricity prices, because many of California's power plants use gas for fuel.

Higher commodities prices will raise the bills of Californians who heat with natural gas. Sempra Energy, parent of San Diego Gas & Electric and Southern California Gas, said Wednesday that customers can expect an increase in gas bills of at least 30% this winter. Newly enacted rate caps on SDG&E customers' electricity bills--which doubled and even tripled in some cases this summer--do not apply to gas. Prices will stay high in California, Zenker said, partly because of the gas main explosion last month in New Mexico that killed 12 people and interrupted transmission to California for a week. The resulting need to fill depleted gas storage facilities and to feed the state's generation plants will keep demand high, as well as pressure on prices. It has been a summer of anguish for the state's recently deregulated power system. In passing the 1996 electricity deregulation bill, state legislators thought they were doing the right thing by ordering the three investor-owned utilities to divest power plants, while setting up a new class of independent power merchants and daily electricity auctions. The hope was that electricity trading over the newly created California Power Exchange, which began operations in 1998, would bring a competitive wholesale market and low-cost electricity to consumers. For a number of reasons, it hasn't worked out that way, and the electricity market instead has gone haywire. Prices have been pushed sky-high by rising demand, inadequate generation, and now the high natural gas prices and shrinking supplies of hydroelectric power. Various state and federal agencies are furiously seeking ways to fix California's broken electricity market. These ominous signs come as average prices of the wholesale electricity making up the lion's share of consumers' light bills hit a record 18.4 cents per kilowatt-hour in August, more than four times the 4-cent average in August 1999 and 12% above the previous record set in June. Because rates are capped, the utilities, not California consumers, are stuck with that price spike for the time being. Fortunately for 1.2 million SDG&E customers in San Diego County and south Orange County--the first in the state to bear the full cost of electricity--a law signed by Gov. Gray Davis on Wednesday placed a cap on their electric bills retroactive to June and in force until 2003. Customers of Southern California Edison and Pacific Gas & Electric, which have not completed the process of deregulating, have had their rates frozen through at least March 2002. In all likelihood, the freezes will only defer payment of the higher wholesale cost of electricity until some future date, because the utilities say they won't be stuck with the difference between their costs and what consumers are paying--a differential that has reached $2 billion at PG&E alone. So far, worst-case scenarios of systemwide failures have not materialized. Except for a single day--June 14, when parts of the San Francisco Bay Area experienced rolling blackouts because of local voltage problems stemming from transmission troubles--the state has avoided the generalized power outages that many thought inevitable. But the state isn't home free, with weather ahead the single biggest concern. "There is definitely going to be an impact on electricity prices if it turns out to be warmer," said Gordon Allott, vice president of business development at KW International, risk-measurement advisors in San Francisco. It doesn't help that the same National Weather Service forecast is calling for continued higher-than-normal temperatures in the Las Vegas and Phoenix areas, which could mean that those regions could have less energy to export to California than usual. Forecasters can be wrong, of course, and few predicted the unseasonably cool weather the state has enjoyed in recent days. The break in summer heat has eased the pressure considerably on the California Independent System Operator, which on some days this summer has had to scurry to fill generation shortages. Although the National Weather Service forecasts are useful as a planning tool, they should be looked at for broad trends and not be taken as gospel, said Ravi Nathan, portfolio manager of weather derivatives at Aquila Energy in Kansas City, Mo. "They were calling for drought in the Midwest this summer, and it turned out to be the rainiest drought ever," Nathan said. "It's too difficult to come up with a standard forecast for the West." But with supplies of importable out-of-state electricity dwindling, and winter natural gas prices expected to rise, the outlook is one more negative sign among many that there will be no early exit from the energy crunch. Southern California Edison's Kevin Cini, manager of energy supply and marketing, said the forecasts have concerned him enough that the utility has "hedged" its power prices for this month, a defensive move in the event it is hotter than normal. "Hedging means we have locked in power in advance of need at certain prices in the case there is extreme weather and the prices spike," Cini said. "Our hedges would provide power at a lower cost to consumers."

Whether the state electricity system emerges from the short-term crunch intact, the fundamentals underlying the crisis--growing power demand outpacing stagnant supplies of power generation--are still present and likely to persist for months and years to come. Experts warn consumers not to expect any easy solution. "This problem is not going to go away tomorrow. Because of the time lag in seeing new generation in place, next summer we'll see the same issues," said Stanford's Johnson, an assistant professor of management science and engineering.

"In fact, we could be worse off rather than better, imagining another 7% growth in demand in the region. Will we have an additional 7% of new capacity by that time? I sort of doubt it. So it could be two or three years before we achieve balance in electricity supply and demand."

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-- Martin Thompson (mthom1927@aol.com), September 11, 2000