Power Prices Soar in Western U.S.; Blackouts Are Feared Monday

(12/8/00 1:54:43 PM PT)

NEW YORK -- The price of power for delivery Monday in the U.S. West soared to all-time highs Friday, outstripping Thursday's record by more than 400%, as a looming cold front threatened to trigger blackouts in California early next week.

Friday's soaring prices are the latest in California's recent power woes. Late Thursday, grid officials in the state declared the highest level of electrical emergency, a so-called Stage Three alert, for the first time ever.

Power officials separately declared a Stage Two power emergency early Friday as power reserves dipped below 5% in the state.

Federal officials also are watching the situation in California. The Department of Energy is closely monitoring the power-supply crisis, but the agency doesn't plan any new extraordinary measures in response to the looming threat of blackouts in the state, a department official said Friday.

'We're doing everything we can,' the official said. 'We're working it hard and monitoring it hourly.' Energy Secretary Bill Richardson is being briefed on developments and 'he's very concerned,' the aide said.

The department is coordinating efforts with the federal power marketing agencies in the region, the Bonneville Power Administration and Western Area Power Administration, 'to get as much power into California as we can.'

Those efforts are limited by the operating constraints of the federally owned hydropower facilities from which the agencies market electricity, and the capacity constraints of California's grid system, the official said.

Federal facilities in the state are continuing to reduce their energy demand and free up capacity on the state's overtaxed power grid, the official noted.

Meanwhile, trades for peak Monday power at the U.S. Northwest's Mid-Columbia River and California-Oregon border hubs soared to $4,400 per megawatt-hour and $3,500/MWh, respectively, with low trades for both reported at the $3,000/MWh level.

Deals at the Southwest's Palo Verde hub were reported as high as $800/MWh, traders said.

Deals were extremely thin, conducted mainly by large power marketing operations, participants said.

The Northwest is expected to see temperatures plunge below zero degrees Fahrenheit in some cities Monday, with full-day averages seen ranging from the single digits to the 20s. The freezing Northwest temperatures are expected to spike power demand in areas with a heavy reliance on electric heating and to reduce exports to California's power-starved system.

With the Northwest struggling Thursday with chilly temperatures and low water reserves for its hydroelectric plants, traders predicted that Monday's cold weather would make it impossible for the region to assist California, no matter what price the utilities and power markets are willing to pay.

Credit concerns also are starting to affect the market, traders said. On Thursday, Southern California Edison, a unit of Edison International (EIX), sent an unprecedented letter of credit to PowerEx, an unregulated power marketing affiliate of BC Hydro in British Columbia, on behalf of the California Independent System Operator, the agency charged with keeping the lights on in the state.

Also on Thursday, Sempra Energy (SRE) asked California Gov. Gray Davis to extend the state's credit to back the ISO's power purchases on behalf of utilities, which sources say have reached $56 million a day this week.

Credit concerns for trading houses also are mounting. If power prices hit $1,000/MWh, a single standard 25-megawatt contract for power to be delivered the next day costs $400,000.

Heating demand throughout the U.S. West was expected to soar to 154% of normal on Monday, up from Friday's forecast demand of 77% of normal.

On Thursday evening, the California ISO declared a so-called Stage Three alert, indicating that operating reserves fell below 1.5%. A Stage Three alert clears the way for emergency power purchases and rotating blackouts.

More than 11,000 megawatts' worth of California generating plants have been off line for maintenance for the past month, depleting the state's generation pool by about 25%.

Uncertainty about Monday has been heightened with the scheduled maintenance of Pacific Gas & Electric Co.'s (PCG) 1,100-megawatt Diablo Canyon 2 nuclear unit. The unit is slated to be taken off line late Friday to clean its water intake system and return to full power sometime Monday, utility officials said.

California ISO officials said Thursday that, should blackouts be implemented on Monday, about one million customers will be affected for every 1,000 megawatts' worth of supply shortages on the system.

Late Thursday, demand threatened to exceed total supply as it soared above 33,000 megawatts, the ISO said.

Meanwhile, the California ISO called a Stage Two power emergency Friday at 12:01 a.m. PST, two hours after the last Stage Two had been called off.

A Stage Two alert indicates power reserves have dipped below 5% in the state and customers who agree to do so in advance may be asked to cut power in exchange for reduced rates.

It's unusual for the ISO to declare a Stage Two in the middle of the night. The reason it was necessary was that the ISO normally uses imports to cover the nighttime hours but those imports were unavailable Thursday.

The ISO hadn't called on utilities to ask customers to cut power as of 9:30 a.m. PST, an ISO spokesman said.

The ISO, which is responsible for maintaining grid reliability in the state, said Friday that the Stage Two alert would end at 10 p.m. PST.

Copyright (c) 2000 Dow Jones & Company, Inc.

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-- Martin Thompson (mthom1927@aol.com), December 08, 2000