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SF Chron, 7/4: Federal price limits backfire
Sac Bee, 7/3: Out-of-state generators pull plug over uncertainty on price= =20 controls LA Times, 7/3: Power sales halted by new pricing curbs ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Federal price limits backfire=20 Some generators withhold power rather than abide by rate caps=20 David Lazarus, Chronicle Staff Writer Wednesday, July 4, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07= /04/M N186091.DTL=20 Officials in California and Nevada, after months of lobbying for federal=20 regulators to cap Western power prices, warned yesterday that the newly=20 imposed limits have had the unintended consequence of increasing a threat o= f=20 blackouts in the two states.=20 The warnings were issued as California came within minutes of rolling=20 blackouts yesterday afternoon, and one day after the first-ever rolling=20 blackouts in Las Vegas forced energy-hungry casinos to shut off fountains a= nd=20 reduce air conditioning.=20 The two states are asking the Federal Energy Regulatory Commission to take = a=20 closer look at the so-called price mitigation plan and come up with revisio= ns=20 that would deter power companies from withholding electricity during=20 shortages.=20 "We need some clarity to this order," said Oscar Hidalgo, a spokesman for t= he=20 California Department of Water Resources, which is spending billions of=20 dollars to keep the state's lights on.=20 "Generators need to be held accountable," he said.=20 The crux of the problem is that price limits kick in during shortages, yet= =20 power companies say these caps force them to sell power at below-market rat= es=20 during periods of high demand.=20 Some companies have responded by holding back power rather than face the=20 expense of shipping electricity from state to state. Each mile that=20 electricity must be transmitted adds to the overall cost.=20 "No one's going to pay for transmission if the cost is near the caps," said= =20 Gary Ackerman, executive director of the Western Power Trading Forum, an=20 energy-industry association in Menlo Park.=20 Ackerman said several companies in his organization decided that there was = no=20 economic advantage to offering power in regional markets when price control= s=20 are in effect.=20 "This means individual regions like California or Las Vegas could end up no= t=20 having enough," Ackerman said. "It increases the threat of blackouts."=20 BLACKOUT ALERT CANCELED California authorities issued a blackout alert at 1:45 p.m. yesterday when= =20 power reserves dipped to dangerously low levels. They canceled the alert=20 about an hour later, after finding additional supplies.=20 "Everyone in the West is fighting for megawatts," said Stephanie McCorkle, = a=20 spokeswoman for the California Independent System Operator, which oversees= =20 the state's power network.=20 The Golden State's latest brush with lights-out conditions came a day after= =20 Nevada experienced its own rolling blackouts for the first time, prompting= =20 heavy power users such as the MGM Grand and Caesars Palace to dim their=20 lights.=20 Don Soderberg, chairman of the Nevada Public Utilities Commission, said tha= t=20 the sudden power emergency took state authorities by surprise and that they= =20 are investigating to see what role the federal price limits may have had in= =20 exacerbating Monday's shortage.=20 "We're looking very closely at this," he said. "There seems to be a potenti= al=20 for unintended consequences."=20 Specifically, Soderberg said Nevada is focusing on operators of older, less= -=20 efficient plants who would find profit margins shrinking, if not vanishing,= =20 under capped prices.=20 "We're going to see how the caps might have played into this," he said.=20 The federal ceiling in 10 Western states, excluding California, is about $9= 2=20 per megawatt hour. In California, a 10 percent surcharge is added because o= f=20 the state's credit risk, bringing the price to just over $101.=20 Ackerman at the Western Power Trading Forum said regional price controls ha= ve=20 extended California's power crisis to neighboring states.=20 "California sneezed and the rest of the region caught the virus," he said.= =20 'LAWYERS LOOKING FOR LOOPHOLES'=20 California and Nevada officials, however, said that they still have faith= =20 that price limits can stabilize Western electricity markets but that federa= l=20 regulators may have to tweak the system so that power companies cannot=20 withhold output.=20 "The generators have banks of lawyers looking for loopholes (in the plan),"= =20 said Hidalgo at the Department of Water Resources.=20 Unfortunately, it may take some time for the regulators to revisit an issue= =20 that they took up only with the greatest reluctance. For months, federal=20 regulators refused to impose price controls, preferring instead to let supp= ly=20 and demand determine costs.=20 Hidalgo said that when it appeared that power companies were throttling bac= k=20 on output Monday, California officials immediately dialed the hot line numb= er=20 provided by the Federal Energy Regulatory Commission in case of emergencies= .=20 "No one answered," he said. "They were closed."=20 State officials tried again yesterday, and this time were told that the=20 commission would look into the matter. They were not given a time frame for= =20 when the commission might come up with a response.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Out-of-state generators pull plug over uncertainty on price controls By Dale Kasler Bee Staff Writer (Published July 3, 2001)=20 Confused by the federal government's new controls on electricity prices,=20 generators withheld so much power from California on Monday that the state= =20 was nearly plunged into rolling blackouts, state officials said.=20 The confusion began when the state's electric grid operators declared a Sta= ge=20 1 power alert in the early afternoon, triggering the price caps for the fir= st=20 time since they went into effect June 21.=20 Out-of-state generators pulled about 1,500 megawatts of electricity off the= =20 table at midafternoon, enough to power about 1.1 million homes, because of= =20 uncertainty about how much they could charge under the new Federal Energy= =20 Regulatory Commission pricing system, said Oscar Hidalgo, spokesperson for= =20 the state Department of Water Resources. The department buys electricity fo= r=20 the state's financially distressed utilities.=20 "They didn't understand what they were going to be paid; there was confusio= n=20 over the FERC order," Hidalgo said. "We saw 1,500 megawatts disappear."=20 The problem was exacerbated by a heat wave across the West, which forced=20 California to compete with other states for scarce electricity, he said.=20 Rolling blackouts hit southern Nevada.=20 Most California officials credit the FERC system, which is based on a=20 variable price cap, with reining in what had been a runaway wholesale power= =20 market. But power generators have complained that the price caps, by limiti= ng=20 profits, could discourage the production of critically needed electricity.= =20 And as Monday's episode suggested, even the uncertainty about where the cap= =20 will fall could lead to unexpected shortages.=20 "That's the risk that you run (with price controls)," said Arthur O'Donnell= ,=20 editor of the newsletter California Energy Markets. "People want any kind o= f=20 certainty at all."=20 Hidalgo said the state avoided blackouts only because of last-minute import= s=20 from the Bonne=0F'ville Power Administration, the federal agency that marke= ts=20 government-produced hydroelectric power in the Pacific Northwest. The state= =20 went into a Stage 2 power alert, the next-to-last level before blackouts ar= e=20 ordered. The alert was canceled in late afternoon.=20 The blackouts would have been the first in California since May 8.=20 FERC imposed a round-the-clock ceiling on power throughout the West. The=20 price fluctuates and is tied to the production costs of the least-efficient= =20 plant operating in California during a "power alert" declared by the=20 Independent System Operator, which runs the state's power-transmission grid= .=20 When there's no alert, prices can't exceed 85 percent of the cap that was= =20 established during the latest alert.=20 Until Monday, the maximum price held steady at about $101 a megawatt-hour i= n=20 California. But when the ISO declared a Stage 1 power alert in early=20 afternoon, signifying that reserve supplies had dwindled to less than 7=20 percent of demand, confusion set in, Hidalgo and others said.=20 Because of a steep drop in the price of natural gas, which fuels many=20 California power plants, suppliers knew the cap would fall. But no one knew= =20 by how much until the price was posted by the ISO.=20 The ceiling for California fell to about $77 at 3 p.m. but was back up to $= 98=20 in two hours, according to the ISO. Those prices include the 10 percent=20 premium that sellers can charge California because FERC said there's a cred= it=20 risk in selling to the state.=20 O'Donnell said it's likely suppliers will pull back from the market every= =20 time the ISO declares a power alert.=20 In-state generators have to operate their plants if summoned by the ISO. Bu= t=20 out-of-state suppliers can withhold supplies, and on Monday it was the=20 out-of-staters that were pulling back, Hidalgo said.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m.=20 Power Sales Halted by New Pricing Curbs=20 Electricity: Confused suppliers, unsure what they will be paid, refuse to= =20 sell to state, which asks FERC for a ruling but doesn't get it.=20 By NANCY VOGEL, Times Staff Writer=20 ?????SACRAMENTO--Confusion over new federal price restrictions prompted=20 several electricity sellers to back away from sales to California on Monday= =20 afternoon, pushing the state closer to blackouts, energy officials said. ?????The state lost sales that would have provided enough electricity to=20 supply more than 1 million homes, said Ray Hart, deputy director of the=20 California Department of Water Resources, which has been buying much of the= =20 state's electricity since January. ?????At least five companies producing or marketing power "are telling us= =20 that since they don't know what they're going to get paid, they're not goin= g=20 to take the risk, and so they're not going to sell the energy," Hart said. ?????The electricity sales fell through after power consumption soared in= =20 summer heat and grid operators were forced to declare a Stage 1 emergency,= =20 meaning reserves had dipped below 7%. It was the first such emergency since= =20 May 31. ?????Under a June 19 order by the Federal Energy Regulatory Commission=20 intended to bring down wholesale electricity markets across the West, a pow= er=20 emergency in California triggers the setting of a new price limit that=20 applies to power plant owners from Washington to Arizona.=20 ?????The new price is supposed to be based upon whatever it costs to run th= e=20 most inefficient, expensive power plant selling electricity to California= =20 grid operators during the first full hour of a Stage 1 emergency. ?????But much uncertainty remains about exactly how and when the new price = is=20 supposed to be established under the commission's order, and that apparentl= y=20 drove away sellers, Hart said. ?????Shortly after the state issued the Stage 1 alert at 1:30 p.m., putting= =20 the old price limit of $90 per megawatt-hour in question, companies that ha= d=20 committed to provide the state electricity hour by hour Monday afternoon=20 backed out, Hart said. The companies include TransAlta Energy Marketing of= =20 Oregon, Constellation Power of Baltimore and Sempra Energy Trading, a unit = of=20 the San Diego-based energy conglomerate. ?????Forced to dip even deeper into the state's power reserves and declare = a=20 Stage 2 emergency, water agency officials called the federal energy=20 commission's hotline for clarification about what the new price should be a= nd=20 when it should take effect. They got no answer. ?????Hart said commission officials reached at home promised to try to=20 clarify their order today. One outstanding question is what obligations pow= er=20 suppliers have to deliver electricity to California in an emergency. ?????Both buyers and sellers in the market agree that the new price, when i= t=20 is set, will probably be lower than $90 per megawatt-hour because the price= =20 of natural gas, the main fuel in California power plants, has dropped latel= y. ?????Temperatures soared several degrees higher Monday than grid operators= =20 had anticipated. But they said they expected to avoid rolling blackouts in= =20 part because the Bonneville Power Administration in Portland, Ore., had=20 agreed to provide several hundred megawatts of Pacific Northwest hydropower= =20 each hour in exchange for a return of electricity from California later thi= s=20 summer. ?????"Bonneville is giving us emergency power to get us through," Hart said= .=20 Copyright 2001 Los Angeles Times
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