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Date: 2001-03-12 11:07:00+00:00
Subject: Soaring Electric Use More Fiction Than Fact Chronicle investigation
 finds power companies manipulate data to excuse their towering rates

Soaring Electric Use More Fiction Than Fact 
Chronicle investigation finds power companies manipulate data to excuse their 
towering rates Christian Berthelsen, Scott Winokur, Chronicle Staff Writers
Sunday, March 11, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/11/M
N213155.DTL 

Power companies say it so often, and with such certainty, that it has become 
a virtual mantra: "Skyrocketing" energy use by Californians is a root cause 
of the state's power crisis, and justification for surging electricity 
prices. 
But a computer analysis of electricity usage data by The Chronicle reveals 
that the mantra is a myth -- that overall growth in electricity demand hasn't 
been nearly as great as the industry portrays it. 
The industry has painted the summer of 2000 as the equivalent of a 100-year 
storm in meteorology -- an event so powerful and unexpected that the existing 
infrastructure was devastated by its force. 
The statistics show that 2000, taken in total, was nothing of the sort. 
Moreover, two independent state agencies' assessments of California's power 
plant capacity appear to show that the growth should have been easily 
accommodated. 
The companies have defended their practice of increasingly taking power- 
generation plants out of service by arguing that heavy demand and consequent 
plant usage necessitated major, time-consuming repairs. 
"The claims that demand growth is rampant and that it was totally unexpected 
and due to the Internet economy, to Silicon Valley, or server farms, 
or people recharging cell phones -- that's bogus," said Tom Kelly, assistant 
executive director of the California Energy Commission. "About as bogus as 
you can get." 
The Chronicle's findings are based on data collected by the California 
Independent System Operator, a manager of the state's electricity grid. They 
show: 
-- Total electricity consumption in California increased only 4.75 percent in 
2000 from 1999, a sharp contrast to claims of industry representatives, who 
have repeatedly relied on isolated, loose or selective comparisons that make 
growth appear as high as 20 percent. In fact, the single greatest hour of 
electricity usage in 2000 was actually lower than any peak demand period in 
1999 or 1998. 
-- Average peak demand -- the average of the highest hour of electricity 
usage for each day -- increased only 4.79 percent from 1999 to 2000. Even 
during the months of May to September in 2000, when the greatest spikes in 
electricity usage occur, demand growth was only 8.31 percent higher than the 
same period the year before. 
-- More than 30 days of critical power shortage warnings, so-called Stage 3 
emergencies, and two days of blackouts this year occurred at times of 
moderate energy use -- levels often below those at which neither warnings nor 
blackouts have occurred in the past. 
The findings appear to buttress suspicions that the "skyrocketing demand" 
explanation for rising energy prices is a cover for what is really happening 
-- 
that power companies have simply started charging more for an essential 
commodity, regardless of whether it is in short supply. 
Presented with The Chronicle's findings, Gary Ackerman, a representative for 
the Western Power Trading Forum, a trade group representing power companies, 
said the calculations support the industry position that electricity demand 
is growing strong. 
"That's pretty healthy growth for California as opposed to the long-term 
historical average, which is close to 2 percent," he said. "To me, that's 
really strong growth." 
Energy demand is certainly on the rise in California -- growth of more than 4 
percent is still double what was projected -- and the state has obviously 
fallen behind in building power plants. 
Even though a recent study found California ranked 47th out of the 50 states 
in per-capita energy consumption, the surging demand explanation has become 
so accepted that leading officials accept it as gospel. Gov. Gray Davis has 
made energy conservation -- 10 percent, at that -- a centerpiece of his 
efforts to solve the crisis. 
"Energy use is growing," said state Sen. John Burton, D-San Francisco, citing 
the growth of Silicon Valley and high-tech operations statewide. "There's 
been tremendous growth, whether manufacturing or high tech -- cell phones, 
faxes, whatever. The stuff is growing." 
Yet the energy industry has been steadfast in its insistence that the 
consumer is largely to blame. In testimony and submissions to government 
bodies considering prescriptions for the crisis, energy demand growth has 
consistently been overstated. 
Joe Bob Perkins, the chief operating officer of Houston-based Reliant Energy 
Inc., told the U.S. Senate in January that California's growing economy and 
high summer temperatures caused electricity use to "surge dramatically" -- a 
demand growth of 13 percent. 
Richard Wheatley, a spokesman for Reliant, said Perkins' testimony was based 
on estimates by the federal Energy Information Administration of monthly 
retail electricity sales. 
"We do stand by that," Wheatley said. "Unfortunately, it does not track with 
ISO data." 
The industry-backed Edison Electric Institute said in a report that 
electricity demand grew by anywhere from 5 percent to 21 percent during the 
spring of 2000, compared with the same period a year earlier. 
Russell Tucker, an economist for the institute, said the group's figures were 
derived by identifying the single highest hour of electricity demand for each 
spring month of 1999 and 2000 and comparing them, finding the May peak rose 
21 percent. 
Granted, the state Energy Commission uses the same model to determine whether 
California has enough plant capacity to meet demand. But the presentation 
makes it appear that overall demand, not just the absolute peak, is growing 
by 21 percent. When the peak of each day is averaged and compared from year 
to year, May's figure was much lower: 12.79 percent. 
Also, nowhere did Edison's report note that the peak hour of 2000, a load of 
43,784 megawatts on Aug. 16, was actually lower than the peak hours of either 
of the previous two years -- 45,884 on July 12, 1999, or 44,406 on Sept. 
1, 1998. 
The Chronicle analysis of average peak demand showed that no month last year 
grew more than June's 15.34 percent, though no blackouts occurred in that 
month. May and June were the only months when demand growth exceeded 10 
percent, the analysis showed. Most months recorded 4 percent or 5 percent, 
and some -- such as September -- were less than 3 percent. 
Two months, October and December, had demand levels lower than the year 
before -- 4.22 percent less for October, 1.46 percent lower for December. 
Mike Florio, a consumer lawyer and board member of the ISO, said that even 
growth of less than 5 percent from 1999 to 2000 would seem overstated, since 
1999 was a relatively mild weather year and 2000 was a much hotter one. "You 
are quite right," Florio said. " 'Skyrocketing' demand is a myth." 
MARKET MANIPULATION?
Consumer representatives and some politicians have long suspected that, 
rather than dire imbalances between supply and demand, market manipulation is 
behind the crisis. 
Generators and power marketers adamantly deny this, saying they have done 
everything they could to keep the lights on. They say they ran aging, 
decrepit plants at higher-than-normal levels last summer to accommodate what 
they described as unprecedented demand. They also say that, at great expense, 
they delayed much-needed maintenance in order to keep the power flowing. 
Their claims have received some support from the Federal Energy Regulatory 
Commission, which said in a report last month that it found no evidence power 
companies were using maintenance schedules to manipulate supply. The report, 
however, was heavily qualified by the FERC, which said it did not investigate 
other forms of manipulation. Moreover, the agency acknowledged that the bulk 
of its investigation was conducted by simply calling power plants and 
questioning them over the telephone. 
The supply side of the energy equation is harder to penetrate, in part 
because supply data are confidential. Thus, the question of how blackouts 
could have occurred at such low levels of demand in January is hard to 
answer. What is clear is that, at times, during the crisis this year, as much 
as 12, 000 megawatts of electricity supply have been unavailable for use, 
mostly because of unplanned plant outages -- about four times the level 
anticipated by the ISO. 
Power companies say the old plants they bought were not capable of producing 
to the levels sketched out by the ISO and the Energy Commission, and that 
everything from low water conditions, emissions limitations and high 
temperatures last year caused less energy to be available than was 
anticipated. 
But others suggest that what began as a shortage caused by a withholding of 
supply to drive up price has turned into one caused by withholdings out of 
fear of not being paid. 
What did go up, unquestionably, were wholesale electricity prices. 
While average electricity usage during the heaviest hours last year increased 
by less than 5 percent, prices charged by power companies to the utilities 
that deliver juice to consumers increased more than 289 percent. 
In June, the cost of a megawatt hour increased more than fivefold, going from 
the 1999 level of $30.53 to $170.60. In October, prices doubled over the same 
period a year earlier, going from $53.47 to $111.04. And in December -- 
despite a 1.46 percent decline in electricity usage from the previous 
December -- peak wholesale electricity prices hit $425.59. They'd been $31.88 
one year before. 
Then the pace of price increases began to accelerate within the last six 
months of 2000. Overall, average peak usage during December was about 31,200 
megawatts, about a fifth lower than it was in August. Average prices in 
December? They just about doubled, to $425 a megawatt hour. 
The companies' explanation for rising prices despite falling demand was that 
more and more plants had to be taken offline for repairs, decreasing supply. 
Even given the high number of inoperable plants, questions remain about why 
the existing supply could not cover demand. 
On the blackout days of Jan. 17 and 18 fewer plants were offline -- and more 
electricity was available -- than on days when the state managed to squeeze 
by without turning out the lights. 
Even today, with Stage 3 alerts having faded away, at least temporarily, 
demand levels remain more or less the same as when California was in a 
constant state of emergency. Moreover, the lists of offline plants are as 
long as ever. 
AMPLE POWER SHOULD EXIST
The Energy Commission and the ISO have concluded that California's power 
plants are capable of generating more than 45,000 megawatts of electricity. 
That means that even with plant repair outages, low water levels decreasing 
hydraulic generation, air-pollution rules and other environmental 
constraints, the power companies should be able to accommodate all but the 
most extreme spikes in demand. 
According to industry data obtained by The Chronicle, the Western Systems 
Coordinating Council, a government-backed trade group in Salt Lake City, 
concluded California would have considerable surpluses throughout 2000, 
including margins as high as 39 percent in December, based on data provided 
to it by the ISO. Even under low water conditions, the ISO reported, the 
state would have total power resources of 47,532 megawatts in that month. Yet 
unplanned outages were far higher, and the system began to crash that month 
and into this year, at far lower levels of demand. 
"Clearly," Florio said, "we should not be having a shortage at 2 a.m. on 
Christmas Eve, when the only person awake is Santa Claus." 
Chronicle Database Editor Erin McCormick assisted in data analysis for this 
report. Chronicle editorial assistant Claire Smith assisted in data 
collection for this report. / E-mail Christian Berthelsen at 
cberthelsen@sfchronicle.com and Scott Winokur at s 
,2001 San Francisco Chronicle ? Page?A - 1