Message-ID: <33459617.1075860397000.JavaMail.evans@thyme> Date: Tue, 20 Mar 2001 04:34:00 -0800 (PST) From: issuealert@scientech.com Subject: California Blackouts: A Prelude to a Long, Dark Summer? Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "SCIENTECH IssueAlert" X-To: X-cc: X-bcc: X-Folder: \Mary_Hain_Aug2000_Jul2001\Notes Folders\Discussion threads X-Origin: Hain-M X-FileName: mary-hain.nsf Today's IssueAlert Sponsors:=20 [IMAGE] The IBM e-Energy Executive Forum =01) "Personalization, Partnership, and=20 Profitability" Designed for executives in the utility industry looking to leverage Custome= r=20 Relationship Management in the competitive marketplace. 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Contac= t=20 John Kelly at (727) 669-3006 for more information or go to=20 www.rapidpartsmart.com =20 [IMAGE] IssueAlert for March 20, 2001=20 California Blackouts:=20 A Prelude to a Long, Dark Summer? by Will McNamara=20 Director, Electric Industry Analysis Citing an emergency shortage of electricity across the state, California=20 power officials ordered rolling blackouts on Monday, March 19, in a move to= =20 avoid toppling the power grid. The California Independent System Operator= =20 (ISO), which manages about 75 percent of the transmission grid serving the= =20 state's 34 million residents, ordered the blackouts shortly before noon=20 Pacific time and said they would likely last through 8 p.m. Pacific time on= =20 March 19. It was the first time rolling blackouts have hit the southern hal= f=20 of the state and the third time this year in the north, following two days = of=20 outages on Jan. 17 and 18.=20 Analysis: Despite all the recent efforts taken by Calif. Gray Davis to solv= e=20 the state's severe energy problems, it now seems inevitable that California= =20 is headed toward another volatile summer full of power problems. One of the= =20 state's fundamental problems=01*supply that cannot keep up with demand=01*i= s being=20 addressed by the governor (and the Bush administration) and is projected to= =20 be solved within the next two or three years. However, the new power supply= =20 that is being planned to serve the state is not coming online quickly enoug= h=20 to stave off problems for this summer. In addition, the current rolling=20 blackouts facing the state are worse than previously enforced cutbacks and= =20 have impacted almost all parts of the state as opposed to more confined=20 areas.=20 The most recent problem appears to have resulted from unusually warm weathe= r=20 in the southern part of the state that drove up use of air-conditioned powe= r.=20 This left the state as a whole with limited reserves at a time when power= =20 plant maintenance and a lack of hydropower already was causing problems in= =20 Northern California. Reportedly, about 13,400 MW of power were lost due to = a=20 transformer fire at a Southern California plant and other idled plants acro= ss=20 the state. In addition, about 2,000 to 3,000 MW of production from qualifyi= ng=20 facilities (QFs) was unavailable on the day of the rolling blackouts. The Q= Fs=20 that were offline typically have produced only small amounts of power under= =20 contract to the state's three major utilities. However, the QFs have stoppe= d=20 producing in recent weeks as a result of the financial problems of Pacific= =20 Gas & Electric Co. and Southern California Edison and the fact that they ha= ve=20 been paid only a small percentage of what they are owed for power previousl= y=20 produced. Under normal circumstances, the QFs can generate as much as 30=20 percent of the state's electricity needs. =20 As a result, the California ISO issued a Stage 3 emergency alert, the highe= st=20 level of emergency, indicating that power reserves had fallen below 1.5=20 percent. In addition, Pacific Gas & Electric Co. implemented blackouts acro= ss=20 Northern California, including San Francisco and the Silicon Valley. Southe= rn=20 California Edison turned off the lights in neighborhoods around Los Angeles= .=20 Together, the two utilities serve about 24 million Californians, and operat= ed=20 the rolling blackouts by moving through a series of predetermined "blocks" = of=20 customers. Operators at substations were directed to turn off power for a= =20 block of customers for about 60 to 90 minutes, then restore service and mov= e=20 on to a subsequent block of customers. Public safety outlets such as police= =20 and fire stations were not included in the rolling blackouts, although othe= r=20 public services such as traffic lights were affected by the outages.=20 While the rolling blackouts occurred, Energy Secretary Spencer Abraham spok= e=20 at the U.S. Chamber of Commerce and acknowledged that California clearly wi= ll=20 not have enough power supply to meet demand this summer. Abraham said that= =20 the state will need about 61,000 MW to meet summer demand while only 56,000= =20 MW of generation is expected to be available. Abraham also reiterated that= =20 the Bush administration will present "a very comprehensive and balanced=20 energy plan" in the coming weeks, one that most likely will focus on=20 increasing domestic supply and reducing U.S. dependence on foreign sources= =20 for oil (as well as conservation efforts). "There's really only three thing= s=20 you can do about a difference between supply and demand," Abraham said. "On= e=20 is to conserve more. The second is to import more. And the third is to=20 produce more. I think we want to focus more on conserving more and producin= g=20 more rather than depending more on other countries."=20 However, only days earlier, the Bush administration warned that electricity= =20 blackouts in California "appear inevitable" this summer, but continued to= =20 issue a strong statement of opposition to addressing the problem with=20 wholesale price caps. In fact, Abraham said that price caps on wholesale=20 energy will "discourage investment in new generation at a time when it is= =20 most needed" and drive power producers to other regions of the country (and= =20 further away from California). The Bush administration's position on price= =20 caps is in contrast with what appears to be a change in policy from the=20 Federal Energy Regulatory Commission (FERC), which historically has also=20 opposed any regional price caps. A report that originated in the Wall Stree= t=20 Journal last week indicated that FERC is leaning toward setting tighter=20 limits on the price that generators can charge for power in California,=20 particularly on hot summer days when shortages could be acute. Reportedly, = a=20 new rule from FERC on wholesale price caps would set maximum prices during= =20 electrical emergencies based on each plant's actual operating costs.=20 Yet, Abraham remains firm that price caps will do nothing to abate the=20 blackouts for which Californians appear to be headed this summer. At a Sena= te=20 hearing on price control legislation last week, Abraham said, "Let me be=20 clear on this. Any action we take must either help increase supply or reduc= e=20 demand. ... Price caps will not increase supply or reduce demand. In fact,= =20 they will aggravate the supply crisis."=20 Thus, we return to the fundamental problem that will continue to cause=20 problems in California and other areas: the need for new power supply and= =20 time limitations associated with establishing that supply. In my IssueAlert= =20 for March 9, I addressed the discrepancy regarding California's power needs= =20 versus power supply. The conclusions I made at that time now appear to be= =20 further validated. During the month of August=01*typically the hottest mont= h in=20 California=01*peak daily demand for power in the California ISO territory i= s=20 expected to hit about 47,700 MW. The state's three IOUs=01*PG&E, SCE and Sa= n=20 Diego Gas & Electric=01*still generate about 8,000 MW from their remaining = power=20 plants and have long-term contracts from wind, solar and other energy sourc= es=20 that gain them an additional 11,700 MW of power. Gov. Davis has established= =20 that about 7,000 MW from the long-term contracts will be available this=20 summer. In addition, back in February, Davis announced a plan to expedite t= he=20 approval and siting process for new power plants in the state, which he=20 promised would bring 5,000 MW online by July (an ambitious goal that may or= =20 may not materialize). =20 Altogether, assuming that all of these projections are reliable, the total= =20 comes to about 31,700 MW that we know should be available in California thi= s=20 summer, leaving the state about 16,000 MW short for its power supply needs.= =20 As noted, Abraham has suggested a California supply / demand imbalance of= =20 61,000 MW of demand versus 56,000 MW of supply, which would make for a=20 slightly less severe scenario. However, Abraham has not fully detailed the= =20 data on which he has based his projections. =20 Nevertheless, no matter how the actual numbers shake out, most everyone=20 agrees that the summer prognosis is not good for California. Rather than=20 questioning if additional blackouts will occur, the ongoing debate relates = to=20 how severe the anticipated outages will become and how long they will last= =20 before additional power supply can be established in the state. And, althou= gh=20 today marks the first day of spring and summer is officially still weeks=20 away, California's problems have already started in full force. According t= o=20 statements from the California ISO, some of the power supply that had been= =20 offline due to mechanical problems during the day on March 19 could be back= =20 online by March 20. However, that will account for only about 300 to 700 MW= ,=20 which is not nearly enough to offset additional problems for California thi= s=20 week (assuming that temperatures in the state remain warm). =20 Yet, as one energy executive once commented, California continues to apply= =20 Band-Aids on hemorrhaging wounds. While the state continues to send out its= =20 SOS signal, what is needed is a reliable, long-term solution that will=20 provide a substantial amount of power to Californians. There is little chan= ce=20 of this solution being found before this summer, so as the temperature=20 continues to rise on the West Coast, California energy officials will be=20 challenged to contain the damage of the state's ongoing energy crisis. =20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. =20 Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. 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