From: issuealert@scientech.com
Date: 2001-03-20 12:34:00+00:00
Subject: California Blackouts: A Prelude to a Long, Dark Summer?

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IssueAlert for  March 20, 2001 

California Blackouts: 
A Prelude to a Long, Dark Summer?

by Will McNamara 
Director, Electric Industry Analysis

Citing an emergency shortage of electricity across the state, California 
power officials ordered rolling blackouts on Monday, March 19, in a move to 
avoid toppling the power grid. The California Independent System Operator 
(ISO), which manages about 75 percent of the transmission grid serving the 
state's 34 million residents, ordered the blackouts shortly before noon 
Pacific time and said they would likely last through 8 p.m. Pacific time on 
March 19. It was the first time rolling blackouts have hit the southern half 
of the state and the third time this year in the north, following two days of 
outages on Jan. 17 and 18. 

Analysis: Despite all the recent efforts taken by Calif. Gray Davis to solve 
the state's severe energy problems, it now seems inevitable that California 
is headed toward another volatile summer full of power problems. One of the 
state's fundamental problems*supply that cannot keep up with demand*is being 
addressed by the governor (and the Bush administration) and is projected to 
be solved within the next two or three years. However, the new power supply 
that is being planned to serve the state is not coming online quickly enough 
to stave off problems for this summer. In addition, the current rolling 
blackouts facing the state are worse than previously enforced cutbacks and 
have impacted almost all parts of the state as opposed to more confined 
areas. 

The most recent problem appears to have resulted from unusually warm weather 
in the southern part of the state that drove up use of air-conditioned power. 
This left the state as a whole with limited reserves at a time when power 
plant maintenance and a lack of hydropower already was causing problems in 
Northern California. Reportedly, about 13,400 MW of power were lost due to a 
transformer fire at a Southern California plant and other idled plants across 
the state. In addition, about 2,000 to 3,000 MW of production from qualifying 
facilities (QFs) was unavailable on the day of the rolling blackouts. The QFs 
that were offline typically have produced only small amounts of power under 
contract to the state's three major utilities. However, the QFs have stopped 
producing in recent weeks as a result of the financial problems of Pacific 
Gas & Electric Co. and Southern California Edison and the fact that they have 
been paid only a small percentage of what they are owed for power previously 
produced. Under normal circumstances, the QFs can generate as much as 30 
percent of the state's electricity needs.   

As a result, the California ISO issued a Stage 3 emergency alert, the highest 
level of emergency, indicating that power reserves had fallen below 1.5 
percent. In addition, Pacific Gas & Electric Co. implemented blackouts across 
Northern California, including San Francisco and the Silicon Valley. Southern 
California Edison turned off the lights in neighborhoods around Los Angeles. 
Together, the two utilities serve about 24 million Californians, and operated 
the rolling blackouts by moving through a series of predetermined "blocks" of 
customers. Operators at substations were directed to turn off power for a 
block of customers for about 60 to 90 minutes, then restore service and move 
on to a subsequent block of customers. Public safety outlets such as police 
and fire stations were not included in the rolling blackouts, although other 
public services such as traffic lights were affected by the outages. 

While the rolling blackouts occurred, Energy Secretary Spencer Abraham spoke 
at the U.S. Chamber of Commerce and acknowledged that California clearly will 
not have enough power supply to meet demand this summer. Abraham said that 
the state will need about 61,000 MW to meet summer demand while only 56,000 
MW of generation is expected to be available. Abraham also reiterated that 
the Bush administration will present "a very comprehensive and balanced 
energy plan" in the coming weeks, one that most likely will focus on 
increasing domestic supply and reducing U.S. dependence on foreign sources 
for oil (as well as conservation efforts). "There's really only three things 
you can do about a difference between supply and demand," Abraham said. "One 
is to conserve more. The second is to import more. And the third is to 
produce more. I think we want to focus more on conserving more and producing 
more rather than depending more on other countries." 

However, only days earlier, the Bush administration warned that electricity 
blackouts in California "appear inevitable" this summer, but continued to 
issue a strong statement of opposition to addressing the problem with 
wholesale price caps. In fact, Abraham said that price caps on wholesale 
energy will "discourage investment in new generation at a time when it is 
most needed" and drive power producers to other regions of the country (and 
further away from California). The Bush administration's position on price 
caps is in contrast with what appears to be a change in policy from the 
Federal Energy Regulatory Commission (FERC), which historically has also 
opposed any regional price caps. A report that originated in the Wall Street 
Journal last week indicated that FERC is leaning toward setting tighter 
limits on the price that generators can charge for power in California, 
particularly on hot summer days when shortages could be acute. Reportedly, a 
new rule from FERC on wholesale price caps would set maximum prices during 
electrical emergencies based on each plant's actual operating costs. 

Yet, Abraham remains firm that price caps will do nothing to abate the 
blackouts for which Californians appear to be headed this summer. At a Senate 
hearing on price control legislation last week, Abraham said, "Let me be 
clear on this. Any action we take must either help increase supply or reduce 
demand. ... Price caps will not increase supply or reduce demand. In fact, 
they will aggravate the supply crisis." 

Thus, we return to the fundamental problem that will continue to cause 
problems in California and other areas: the need for new power supply and 
time limitations associated with establishing that supply. In my IssueAlert 
for March 9, I addressed the discrepancy regarding California's power needs 
versus power supply. The conclusions I made at that time now appear to be 
further validated. During the month of August*typically the hottest month in 
California*peak daily demand for power in the California ISO territory is 
expected to hit about 47,700 MW. The state's three IOUs*PG&E, SCE and San 
Diego Gas & Electric*still generate about 8,000 MW from their remaining power 
plants and have long-term contracts from wind, solar and other energy sources 
that gain them an additional 11,700 MW of power. Gov. Davis has established 
that about 7,000 MW from the long-term contracts will be available this 
summer. In addition, back in February, Davis announced a plan to expedite the 
approval and siting process for new power plants in the state, which he 
promised would bring 5,000 MW online by July (an ambitious goal that may or 
may not materialize).  

Altogether, assuming that all of these projections are reliable, the total 
comes to about 31,700 MW that we know should be available in California this 
summer, leaving the state about 16,000 MW short for its power supply needs. 
As noted, Abraham has suggested a California supply / demand imbalance of 
61,000 MW of demand versus 56,000 MW of supply, which would make for a 
slightly less severe scenario. However, Abraham has not fully detailed the 
data on which he has based his projections.  

Nevertheless, no matter how the actual numbers shake out, most everyone 
agrees that the summer prognosis is not good for California. Rather than 
questioning if additional blackouts will occur, the ongoing debate relates to 
how severe the anticipated outages will become and how long they will last 
before additional power supply can be established in the state. And, although 
today marks the first day of spring and summer is officially still weeks 
away, California's problems have already started in full force. According to 
statements from the California ISO, some of the power supply that had been 
offline due to mechanical problems during the day on March 19 could be back 
online by March 20. However, that will account for only about 300 to 700 MW, 
which is not nearly enough to offset additional problems for California this 
week (assuming that temperatures in the state remain warm).  

Yet, as one energy executive once commented, California continues to apply 
Band-Aids on hemorrhaging wounds. While the state continues to send out its 
SOS signal, what is needed is a reliable, long-term solution that will 
provide a substantial amount of power to Californians. There is little chance 
of this solution being found before this summer, so as the temperature 
continues to rise on the West Coast, California energy officials will be 
challenged to contain the damage of the state's ongoing energy crisis.  

An archive list of previous IssueAlerts is available at
www.ConsultRCI.com




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