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Date: Tue, 20 Mar 2001 04:34:00 -0800 (PST)
From: issuealert@scientech.com
Subject: California Blackouts: A Prelude to a Long, Dark Summer?
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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




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