Calif Gov Fiddles As Summer Likely To Burn

----- Forwarded by Jeff Dasovich/NA/Enron on 02/25/2001 03:22 PM -----

POWER POINTS:Calif Gov Fiddles As Summer Likely To Burn
By Mark Golden
A Dow Jones Newswires Column

NEW YORK (Dow Jones)--Once there was a bride whose pianist became ill the
night before a beachfront wedding. As she frantically tried to find a new
pianist, the radio blared an alert: A 40-foot tidal wave was headed
straight
for
the beach.
"I just will not let this pianist ruin my wedding," muttered the bride as
she
turned the radio off.
California Gov. Gray Davis and the state Legislature have no better sense
of
priorities than the bride did. They've been obsessing over the financial
solvency of the state's utilities for three months, instead of making
progress
on the bigger problem: the huge shortage of electricity expected to hit the
state this summer. California's multibillion dollar purchase of the
utilities'
transmission lines won't add one megawatt to the supply of electricity.
How big is the imbalance between supply and expected summer demand? The
California Energy Commission forecast two weeks ago that the
60,000-megawatt
system might just squeak by with 87 MW to spare in a bad heat wave. But
nobody
takes that forecast seriously.
The CEC's numbers are way off base. California's electricity demand could
exceed supply by 5%, or 2,000 MW, on days with typical summer weather. That
2,000 MW shortfall will be made up by turning out the lights in 2 million
homes,
or a mix of homes, businesses and industry. A bad heat wave would get
shortages
several times that size. As the blackouts roll through parts of the state
every
weekday that temperatures are at or above normal, every business and home
will
take its turn at getting by without electricity for an hour or so. What
factory
can operate under such conditions? Will the state's elderly survive the
heat
exposure?
The CEC put the capacity of generators in the state at about 54,000, but
it
used original capacity figures. Most of California's big power plants are
more
than 30 years old. They can't produce as much power as they once did, so
subtract about 7,000 MW from their rated capacity.
About 15,000 MW of the state's capacity is now controlled by merchant
energy
companies Calpine (CPN), Duke Energy (DUK), Dynegy (DYN), Mirant (MIR),
Reliant
Energy (REI) and Williams Cos. (WMB). They say they already have sold much
of
the power they will generate this summer to out-of-state western utilities.
But
the CEC ignored that.
Hydroelectric generation in the western states is expected to be just 60%
of
normal this spring and summer. Western utilities have been buying up
supplies
since last fall. California's PG&E (PCG) and Edison International (EIX)
couldn't
do that, of course, because they're nearly bankrupt.
Nobody knows exactly how much power has already been sold out of state. A
trader at one California merchant power company estimated 5,000 MW. In a
recent
auction of transmission line use, capacity to move electricity out of
California
sold for up to 15 times the price of transmission capacity to move power
into
the state.
The CEC ignored the sales of California power to out-of-state generators
in
its rosy summer outlook and ignored the forecast for below-normal
hydropower,
which depends on winter snowfall. The snowfall season is three-fourths over
now,
making a hydropower shortage pretty much a done deal. Yet the CEC used
normal
northwest hydropower production in its forecast. Take off another 2,000 MW.
The commission expects 3,000 MW of generators to be off line for
unplanned
repairs when the heat wave hits. That's California's historic average. But
outages usually increase dramatically during a heat wave. Take off another
2,000
MW.
The commission expects all 1,000 MW of Davis' recently announced peaking
generators to be on line for the summer. "No way," says the industry.
Instead of the CEC's estimate of 61,000 MW, then, California can expect
available supply of only 44,000 MW. The state needs 51,000 MW to meet
demand
and
maintain recommended reserves in the kind of heat wave it gets, on average,
every two summers.
People in the industry have been telling the governor for nine months
that
there's no way to raise supply to meet demand this year or next. Siting and
building power plants takes too long. Demand has to be reduced to the level
of
supply.
The current course is to reduce demand through blackouts. Pricing offers
a
better way. If the state raised electricity rates immediately - a step no
longer
opposed even by California consumer group The Utility Reform Network -
California would stop burning through the natural gas and water reserves
needed
to keep generators running this summer.
Davis insists on solving the crisis without a rate increase big enough to
damp
demand. Several western U.S. utilities outside California have already
imposed
such rate hikes. Davis is focused on buying power, even though California
can't
subsidize consumption of artificially cheap power much longer. The
Department of
Water Resources is signing 10-year power supply contracts at hefty prices
that
fully reflect today's supply-demand imbalance.
Instead, he should be addressing the imbalance, which must be dealt with
sooner (by prices) or later (by blackouts). Raise California rates
significantly
now. Cut demand, and the wholesale price for electricity comes crashing
down.
Then sign long-term contracts at the lower rates.
Davis is committing California's citizens and businesses to 10 years of
overpriced electricity. After that, he says, he will try to reduce demand.
His
streak of bad decisions in this crisis continues unbroken.
-By Mark Golden, Dow Jones Newswires; 201-938-4604;
mark.golden@dowjones.com

(END) Dow Jones Newswires 23-02-01
1944GMT(AP-DJ-02-23-01 1944GMT)