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Energy Commission Sees Adequate Electricity for State Through 2004

Energy Commission Sees Adequate Electricity for State Through 2004

But Conservation Efforts, Plant Construction Remain Wild Cards for Long Term.

By LEE ZION

California has all the electricity it needs from now until 2004, according to the state Energy Commission.

Even so, customers may have to pay more for that power, and there is a chance that the state could experience a shortage similar to the 2000 energy crisis starting in 2005, the commission says.

The commission released its “2002-2012 Electricity Outlook Report” on Nov. 30. The report is intended to assess the current energy situation, and design a market that will replace it, said Claudia Chandler, a commission spokeswoman.

The report states there will be enough energy to meet California’s needs until 2004, assuming planned power plants are built and current levels of conservation continue. But while the outlook has improved, there are many issues that must be addressed.

“The market structure that currently exists is an ad hoc arrangement, created to respond to the immediate needs of the crisis that was averted. If pending electricity-related financial issues are not resolved and positive steps toward fixing the market structure are delayed, California will most likely face long-term system problems,” the report stated.

For one thing, the commission staff members said they cannot adequately gauge the peak demand on the California electrical system, or future prices on the spot market.

The good news is that Californians were successful at reducing energy use last year. Even though the average temperatures during the summers of 2000 and 2001 were roughly the same, demand in 2001 was substantially lower than it was the year before: there were only six days during the summer of 2001 when demand exceeded 40,000 megawatts, compared with 29 such days in the summer of 2000, the report stated.

However, it remains too early to tell whether this reduction in demand is permanent. Some of the changes in demand patterns may only be temporary. Other changes may be due to new technology, which can have a long-term effect, according to the report.

Meanwhile, the effects of rate surcharges, newly legislated programs and recent international events have not yet been determined, the report stated.

The report does predict that if demand and prices for electricity stay low, that will discourage investment in new power plants, while encouraging the retirement of older, less-efficient plants. Should electricity demand then return to its previous levels, it could trigger shortages and high prices once again, according to the report.

“A ‘boom-bust’ dynamic is an inherent part of the structure of the market. The amplitude and length of these cycles cannot be known in advance, but must be considered in market design,” the report said.

However, another shortage and price spike are unlikely before 2004, it said.

Also, California’s newest power plants use natural gas exclusively. So the fluctuating price of natural gas will have an increasing influence on the spot market price of electricity, according to the report.

“Unless modifications are made (to the market), by 2005 California will be headed back into supply and demand conditions likely to produce tight supplies, price volatility, reliability concerns, and consumer dissatisfaction,” the report said.

How this will affect consumer prices is difficult to predict, the report said. Future regulatory actions, new technology, market changes and many other factors may affect the price of electricity.

In the past year, customers at both investor-owned and municipal utilities have seen dramatic rate increases. During the next few years, municipal rates will probably remain constant, but could increase in later years to reflect energy costs and inflation, according to the report.

Customers at investor-owned utilities most likely will see rate increases in 2002 and 2003 as high as 20 cents per kilowatt hour for small customers. However, the increases will level off so that eventually the rates will become comparable to municipal utilities’ in the later years, the report said.

Michael Shames, executive director of the Utility Consumers Action Network, was more pessimistic. Despite the Energy Commission’s assurances that the state has the energy it needs until 2004, the situation could be tight in the summer of 2002, he said.

Shames acknowledged that the state squeaked through the summer of 2001, and there would be additional power online by next summer. However, the state had two mild summers in a row, he said. If the state faces very high temperatures, it would mean an increased demand for electricity, and possibly reduced availability of hydroelectric power. If Californians do not continue to conserve electricity the way they did this summer, supplies would be tight, Shames said.

“(For) 2003, 2004, things could ease up. But I don’t believe we’re out of the woods for 2002,” he said.

Shames added that with Gov. Gray Davis is up for re-election in 2002, electricity suppliers wanting to see Davis fail could take production off-line for maintenance or repair, creating blackouts during his campaign.

“It wouldn’t surprise me at all if we had more outages next summer than would be normal, purely predicated out of revenge,” Shames said.

“Nothing would hurt him more than in the middle of the election campaign, say in the late summer, suddenly some power plants go down, and there are outages.”

Zion is a staff writer with the San Diego Business Journal.

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