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

DOWJONES

(12/8/00 3:46:43 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.

Meanwhile, a stage-two power emergency was declared in Washington, Oregon, Montana and Idaho, a spokeswoman for the Washington Utilities and Transportation Commission said.

And, officials said the Federal Energy Regulatory Commission -- slated to meet Wednesday to issue a final order restructuring the California's problem-plagued deregulated electricity market -- may issue an emergency order before then, FERC Commissioner Linda Key Breathitt said.

"This is extremely serious," she said of the capacity-short Western power grid and skyrocketing prices for natural gas in the region. "The prices are out of whack on gas and electricity."

FERC Commissioner William Massey said the agency is considering an emergency petition filed Friday by the California Independent System Operator -- the state's power grid operator -- to act by 7:00 p.m. EST. He declined to discuss what specific action FERC may take.

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. The same declaration made by the four Northwest states means the same, and that customers on voluntary interruptible contracts may be asked to cut power in exchange for reduced rates, WUTC spokeswoman Marily Neehan said.

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.

Northwest generators plan to run plants at maximum capacity and may have to kill off some salmon in order to avoid rolling blackouts in Washington, a spokesman for Bonneville Power Administration said. California typically imports power from the Northwest.

In addition, an Energy Department spokesman said Nevada was also experiencing power supply shortages, its being due to low hydropower. However, a spokeswoman with the Nevada Public Utilities Commission said she hadn't heard of any power disruptions.

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 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. Sempra owns San Diego Gas & Electric.

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.

Meanwhile, Merrill Lynch & Co. (MER) said California's three investor-owned utilities may be forced to file for bankruptcy if state regulators don't allow the companies to raise their retail-electricity rates.

In a research note, Merrill Lynch said the stocks of Edison International, Sempra and PG&E Corp. (PCG), which owns Pacific Gas & Electric, are at "high risk" because the companies' electricity rates to consumers are frozen far below the soaring wholesale-electricity costs the utilities are paying.

PG&E and SoCal Edison are more than $5 billion in debt. But analysts said that number could double by the end of the year given the current volatile situation in California. The utilities' ability to purchase power is also in jeopardy. Many power suppliers, fearing default on payment, are now requiring the utilities to sign a letter of credit promising to pay for the commodity.

And state officials are ignoring the utilities cry for help. Late Thursday, state regulator Loretta Lynch denied PG&E and SoCal Edison's request to raise its retail rates and end a state-mandated rate freeze - saying the move is premature.

"The continued lack of reaction is putting the utilities into dire straits," the Merrill Lynch note said. "They may have to take drastic action just to get people's attention."

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.

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.

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 night-time 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.

-- (in@energy.news), December 09, 2000

Answers

No big problem for those of us with preps. With my Baygen radio+light and Baygen wind-up light as well as some candles, I'll be ready to entertain some of the ladies in my apartment complex and help them keep warm too. People in California without earthquake preps (most of the population) are idiots.

-- Mr, Baygen (-@making.new.friends), December 09, 2000.

Bad thoughts Mr. Baygen. My town runs its own electric and is selling excess (below the going rate) to Edison. A fortunate more than foresighted consequence of a locally run monopoly.

Smuggness thrown in the face of your "idiots" stinks.

-- Carlos (riffraff@cybertime.net), December 09, 2000.

Carlos,

Sorry to have offended you. My comment was born of frustration with relatives, friends and neighbors who refuse to even consider minimal preparations yet live in an active earthquake zone. Minimal earthquake preps also come in rather handy for other disaster scenarios, too. Most people I know don't even have candles. Guess who they'll come looking for when the power is off? It sounds like your community is a lot smarter than mine.

-- Mr. Baygen (-@minimal.preps.or.else), December 09, 2000.