Power Prices Soar in West as Blackouts Loom; 4 More States Issue Warnings

12-08-00 11:39 AM EST | 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," noting that "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.

The ISO sought permission to implement a $250 a megawatt-hour soft cap on its real-time market. Later, the agency said it would implement the cap at 6 p.m. EST. "Bids in excess of $250/MWh will no longer be rejected by the ISO's computerized sceduling system but, instead, will be evaluated in price merit order," the ISO said.

The petition complained that California power producers are refusing to submit enough bids into the ISO-administered real-time market because the $250 per megawatt-hour price cap is not high enough to cover their production costs, sent soaring by skyrocketing natural-gas prices.

The cost for energy purchases above the cap will be allocated to utilities "who rely on the ISO's real-time energy purchases to meet their loads, rather than buying their own supplies in the forward market," the ISO said.

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 California. The same declaration made by the four Northwestern states means that customers on voluntary interruptible contracts may be asked to cut power in exchange for reduced rates.

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.

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.

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.

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 per megawatt-hour, 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, 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."

http://news.morningstar.com/news/DJ/M12/D08/76320064815.html

-- Martin Thompson (mthom1927@aol.com), December 09, 2000

Answers

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....

So, when do we watch the price of salmon rise?

-- Rachel Gibson (rgibson@hotmail.com), December 09, 2000.