Western Price Survey / Archives
September 7, 2001
Neither an expected burst of warm weather nor the loss of more than 2,000 MW of generation in Montana did much to move Western energy prices this week. Prices throughout the region stuck in a fairly tight range that differed little from those set in advance of the Labor Day holiday last week.
Loss of two crucial Northwest transmission lines caused all four units at the Colstrip generating station and some NW hydro to trip early Thursday morning. Grid operators also reported a significant frequency excursion to 59.73 Hertz, but there appeared to be no lasting damage. One source termed it a "service coordination problem" rather than an equipment failure and Colstrip operators began returning units to service later in the day.
There was nil impact on power prices. Real-time energy on the Alberta Power Pool blipped up a little after the outage, but soon returned to the low off-peak levels previously set on the pool.
Aside from the 2,085 MW lost at Colstrip, the market also experienced loss of the 740 MW Four Corners No. 5 on Wednesday and what was called an unplanned outage at the 790 MW Mohave No. 1 in Nevada. There has been increasing controversy over the fact that California grid operators have taken to using Mohave as a throttle, reportedly ordering the baseload coal plant to ramp up and down as if it were an intermediate load facility. A member of California's Congressional delegation, Doug Ose (R-Sacramento), has even called for hearings to determine if the California Independent System Operator is holding back on Mohave output to secure a market for much higher prices power purchased by the Department of Water Resources.
Whether or not that is true, the situation illustrates how politically tinged California's market remains, even though the system crisis has faded.
Power prices lifted a bit midweek as traders anticipated that hotter weather might increase demand. Once again, that did not pan out and Cal-ISO's peak steadily diminished as the week wore on. From a high point Tuesday of 37,800 MW, the afternoon peak drifted to just 34,350 MW Thursday.
Palo Verde was at the high end of the market, hitting 35 mills/KWh midweek before dropping to 31.5 mills/KWh heading into the weekend. Off peak was mostly in the 18 mills to 20 mils/KWh range in the Southwest.
Everywhere else, prices kept below the 30 mills mark, except for a few transactions at NP15 at 31 mills/KWh on Wednesday. NP15 also has the highest off-peak prices at 24 mills to 25 mills/KWh for Friday/Saturday deliveries.
Mid-Columbia dropped a notch to 27.5 mills/KWh for daytime energy and 21.5 mills to 22.5 mills/KWh for overnight power.
While the precipitation picture has not changed in recent weeks, the passage of time has reduced the feeling of crisis. Seattle's mayor this week declared an end to a water rationing emergency, but noted the region is still at only 70 percent of average rainfall for the year. A new water year begins October 1 and parties throughout the West hope next year will be much wetter than last [Arthur O'Donnell].
Gas Tries to Stage a Rally
After hitting a two-year low point late last week, natural gas markets rallied a bit, with basin and border prices rising as much as $0.20/MMBtu. Prices are still well below where they were two weeks ago, and on average are half of what they were during the late summer of 2000-a comparison that appears to hold true at hubs throughout the US.
Some traders reported that there was so much surplus fuel in the pipelines over the Labor Day weekend that people were practically giving away surpluses for the cost of transport. One reported transaction in Alberta was at a price of less than $1 Canadian, sources said. That basement bargain dissipated as the market returned to work, but the Alberta price remained below $(C)2.75/Gigajoule most of the week. Some pointed to maintenance work on the PGT pipeline as helping to prop up the listless market prices coming out of Canada, with deliverability cut by 100 MMcfd to 200 MMcfd through Friday.
The San Juan Basin price climbed above $2/MMBtu midweek and was seen in the $2.11 to $2.17/MMBtu range. Permian Basin gas picked up to $2.21/MMBtu and the Southern California Border price revived to $2.40/MMBtu late in the week [A. O'D.].
Power Authority Inundated with Offers
Even before it has formally adopted a procurement strategy, the new California Power Authority has received over 115 proposals for new power plants or energy sales. The overwhelming response may make it unnecessary for the new agency to go through a formal solicitation process for peaking-power facilities and some forms of renewable resources. However, the agency is planning to issue RFPs for various renewable resources, including a solicitation for companies to produce up to 20 MW of solar photovoltaic cells per year through 2005-if they are made in California and are available for sale to both the state and to the public.
According to staff consultant B.B. Blevins, who is overseeing the procurement process, the Consumer Power and Conservation Financing Authority has already received offers from 70 developers of peakers and 45 renewable power projects. "Those people interested in doing business with us are submitting term sheets with signed letters of intent. If we are interested, we'll countersign the letters and begin negotiations," he said. "No contracts are being signed."
A list of proposed project developers posted this week shows that at least 11 wind developers, 8 biomass companies and 3 geothermal firms are being considered for negotiations. Also the Power Authority said it has received a conservation proposal from DBS Industries. All these projects are expected to be reviewed at the September 7 meeting.
The authority has only vaguely defined its strategy with regard to acquiring energy resources. Its newly appointed board did not formally act on a staff recommendation to seek 3,000 MW of power, including 1,000 MW of renewable resources during an initial public meeting on August 24. The agency, however, has institutionalized a goal of creating a 15 percent operating reserve margin that will be under its control in order to create what Power Authority head Dave Freeman called "an insurance policy" against power price volatility and resource shortages. That reinforced another agency strategy that it will acquire ownership in facilities, not just enter into power- purchase contracts.
Last week, the agency posted on its Web site a proposed "pass/fail" criteria for initial selection of projects specifying that units must be on line by July 1, 2002, pose no environmental concerns and "be available for authority purchase on the first date" of operations. Additionally, the criteria said preference will be shown for projects located North of Path 15, the infamously congested transmission corridor separating Northern and Southern California utilities.
Again, there has been no public action by the Power Authority board to adopt the selection criteria, but Blevins promised a public discussion of procurement at upcoming board meetings. "You may think it's moving fast," he told CALIFORNIA ENERGY MARKETS. "But there will be a discussion about how to proceed and the board will collectively make a decision. You're going to see the strategy develop meeting to meeting in public."
This week, the term sheet for peakers-basically a draft offer with lots of blank lines for developers to fill in prices and other items- was joined by a similar sheet specifically for wind power. A big difference is that while the Power Authority intends to own the peakers being offered by developers, it is willing to buy energy from wind plants for 10 years, then exercise an option to buy the facilities.
The reason is that wind project economics depend heavily on federal tax credits. Having a private firm build and own the plant provides more favorable cost structures even than if the state uses low-cost public financing to build the same project, Blevins explained. "The expectation is that the Power Authority will buy energy for the 10- year life of the tax credits," then take possession of the facility," he said.
The concept will get a fuller airing at the September 7 board meeting, which will focus on renewable resources. Because the agency has been swamped with peaker proposals, it will defer that discussion until a later date.
Also on the agenda is a proposal for a formal solicitation for solar PV manufacturers. The RFP was described as "two contracts for 10 MW per year for four years," based on the lowest bids. The Authority intends to "award the contracts to manufacturers that agree to manufacture the PV cells and/or modules in California. The manufacturers will also be required to manufacture at least an additional 10 MW of PV cells or modules that would be available to the general public at prices no higher than the price offered to the state," according to agenda materials.
During the August 24 "beauty pageant" in which scores of prospective development partners pitched their ideas, Freeman clearly favored PVs over potential central station solar plants. "There are two forms of solar this board will want to consider," he said. "Central station is not competitive with PVs, but PVs can compete with the retail cost of electricity." Citing the authority's ability to obtain low-cost bond funding, he added, "This is an opportunity to give solar commercialization a major shot in the arm."
Nonetheless, the Power Authority said it will also post draft RFPs for PV stations, centralized solar thermal, fuel cells and mictoturbines
Adding these emerging technologies to the wish list will be a key part of the agency's strategy and may take up half of the authority's funding capacity, Freeman has indicated. "If we don't come out of this crisis without better technologies, then we've been through hell for nothing" [A. O'D.].
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