Soaring Electric Use More Fiction Than Fact Chronicle investigation

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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