California Natural gas prices go through the roofgreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
Published Tuesday, December 12, 2000
Natural gas prices go through the roof Power officials say the soaring rates justify the controversial actions taken last week to stabilize the state's poor electrical system By Mike Taugher TIMES STAFF WRITER
Prices for natural gas soared again Monday, prompting state power grid officials to say that severely criticized plans they developed late last week to stabilize a faltering electrical system were justified.
The skyrocketing price tag for natural gas had forced several power plants around the state to sit idle because they could not operate profitably under a price cap that grid managers had instituted, according to managers at the California Independent System Operator.
The ISO, in response, softened that price cap late Friday as part of a three-part plan to get through a crisis in which the agency was on the verge of ordering rolling blackouts.
"I don't think that the thing we did Friday is going to raise costs. It actually is helping operationally," said Kellan Fluckiger, the ISO's chief operating officer. "The main issue is these astronomical natural gas prices."
Natural gas was selling between $45 and $60 per million British thermal units Monday, up from between $2 and $3 per million British thermal units last December, according to one industry official.
"It's just phenomenal," said Tom Williams, spokesman for Duke Energy North America, which owns four gas-powered power plants in California.
A shortage of power continued to plague California on Monday as the ISO issued a Stage 2 alert for the eighth consecutive day. When those alerts are issued, residents and businesses are asked to cut back on their use of electricity.
The ISO plan, which was approved within hours by federal regulators, allows the ISO to penalize power companies that refuse its orders to fire up their idle plants, and at the same time provides a way for those companies to get paid above the $250 per megawatt-hour price cap if they can justify higher production costs. For utility companies that have not purchased gas in advance, the cost of generating electricity is between $430 and $600 per megawatt-hour, according to Williams.
But the ISO plan has come under intense criticism.
Gov. Gray Davis called the price cap softening "disastrous for ratepayers and businesses." The governor accused the ISO of misleading his staff and federal regulators, and he accused the federal regulators who approved it of doing so "in the dark of night without notice to anyone in California."
"The commission continues to be in contact with the governor's office," said Barbara A. Connors, spokeswoman at the Federal Energy Regulatory Commission.
Representatives of Pacific Gas & Electric Co., which could face higher bills for electricity bought at the last minute under the new rules, were equally inflamed.
"These are prices that are going to have to be paid by our customers," said PG&E spokesman Ron Low. "To go out and pay the ransom being charged by the out-of-state generators (who have purchased California power plants, including some that were owned by PG&E) for power is very troubling to us."
All that criticism is fairly new to the ISO, which until this summer's power crunch had operated in relative obscurity as the state-created, nonprofit agency that is responsible for overseeing the power grid over 75 percent of the state. The creation of the ISO was made necessary when California began deregulating its electricity market in 1998, when the power grid ceased to be run by monopolistic utilities.
But deregulation has turned into a near-disaster, with retail rates already zinging San Diego consumers and with wholesale rates skyrocketing around the state. PG&E is seeking permission to bill its customers retroactively for those higher wholesale costs, which have rolled up to nearly $4 billion since last summer.
"Pointing to the ISO as somehow the reason all this happened is simply not so," said Fluckiger.
Instead, ISO officials said their plan was developed as a stop-gap: Regulators with the Federal Energy Regulatory Commission are scheduled Friday to implement several changes to California's troubled energy market, including a wholesale restructuring of the ISO's unwieldy 29-member governing board.
"Taking emergency action was the right thing to do," said Carolyn Kehrein, a Dixon energy consultant who is also a member of the ISO governing board. "And doing a package that could be approved in one or two hours was the right thing to do. Soft caps, in and of themselves, are problematic in the long term. But we'll come up with a better plan. It was the best thing we had at the moment."
When the federal order is done, it is likely to supersede the ISO's plan. But it is also likely to contain similarities because the ISO, knowing that its plan needed FERC approval, shaped the proposal around items it knew FERC was considering, according to Fluckiger.
On Friday, FERC is expected to, among other things, restructure the ISO's governing board, which even board members now acknowledge is unwieldy and pervaded with conflicts of interest.
Kehrein said that the board sailed smoothly during its first couple of years, but that it ran into trouble this summer when it had to review price caps, which eventually were reduced by the commission from $750 per megawatt-hour to $250 per megawatt-hour.
-- Martin Thompson (firstname.lastname@example.org), December 12, 2000