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Western Price Survey / Archives

December 8, 2000
Stage Three declared for First Time Ever

As it endured a difficult week of power emergencies, Cal-ISO on December 7 did something it had never before done-declaring a Stage Three Emergency for about two hours beginning at 5:15 pm because capacity reserves fell below 1.5 percent of available resources. Operators blamed the fact that more than 11,000 MW of generation was not available for service, with as much as 7,000 MW of that having declared unplanned outages. Other factors contributing to the squeeze were an associated cold-weather crisis in the Pacific Northwest and the runaway natural gas market.

The Stage Three did not trigger forced outages of service by regulated utilities, but everyone stayed on the edge of their seats hoping the worst would soon pass. Cal-ISO spokesperson Pat Dorinson said that arrangements with Western Area Power Administration and the state Department of Water Resources have been in place to provide emergency backup to California should it approach Stage Three. On Thursday, he said, WAPA delivered 50 MW and the state water operator provided 200 MW of reduced pumping load. In addition, Cal-ISO recalled 250 MW of power scheduled for export from the state. The system peaked at 31,604 MW but that included more than 1,000 MW of curtailed load under interruptible contracts. "We're just holding our own," Dorinson said. The Stage Three was terminated by 7:30 pm but officials warned another crunch could occur Friday and Cal-ISO called another Stage Two beginning at midnight.

Nothing on the horizon suggests that next week will be any easier.

The Stage Three announcement capped an unprecedented week in the energy market that saw fuel prices skyrocket to all-time high levels above $50/MMBtu at the Southern California Border and $35/MMBtu in Northern California. At those prices, several marketers complained that they could not operate economically under the $250/MWh price caps at Cal-ISO, and there was speculation that some generators were withholding production based on economics rather than necessity.

Skeptical that unplanned outages at numerous California power stations were really due to repairs, investigators from the California Public Utilities Commission pulled surprise visits to at least a dozen facilities this week. Staff from the California Independent System Operator accompanied the posse, but Cal-ISO declared the effort as one instigated and led by the CPUC.

Cal-ISO was in emergency mode all week, starting at 7 am on Monday, December 4 after two transmission lines in the Bakersfield area relayed, pulling at least one 400 MW generator off line and disrupting the supply/demand balance. That equilibrium was never really restored and every day of the week saw the alerts escalate to Stage Two emergencies requiring curtailments by interruptible power users and emergency calls for additional resources.

The situation was so severe that Cal-ISO asked Californians to defer turning on their Christmas lights and displays until after peak-load hours. Reluctantly, the state of California complied by truncating the annual tree-lighting ceremony in Sacramento. Governor Gray Davis switched on the Capitol tree as planned, but only for about half an hour. The lights were then extinguished until after 7:30 pm. Davis called the situation "ridiculous" and promised to send a picture of the dimmed tree to federal regulators who are mulling an order on ways to fix California's power market.

The holiday lighting limits earned headlines in newspapers and a top slot in broadcast news coverage across the state, while the surprise inspections of power plants was all but ignored by the general media.

About two dozen CPUC employees were called in for inspection duty, agency president Loretta Lynch told the Reuters news service on Wednesday. "The load levels we have right now are nowhere near last summer's demand and there should not be a reliability issue," she said. "Why aren't the plants running? We need to evaluate why the plants are down."

No information was available as to what inspectors found. Lynch's advisor Kim Malcolm could only confirm that a dozen facilities were visited where inspectors looked over the physical plant and operating logs.

While indications are that generation owners did not resist the inspections, there was one case in which investigators were asked to return at a more convenient time.

According to Aaron Thomas, spokesperson for AES, which owns three generating stations outside of Los Angeles, inspectors showed up at the Huntington Beach station on Tuesday night with no advance notice. The unit has been shut down because of air quality concerns, and only a skeleton crew was on hand. They asked that inspectors return the next day when management could be available. Thomas said he did not know if they returned to Huntington Beach but he confirmed visits on Wednesday to Los Alamitos and Redondo Beach facilities where the inspectors "watched us trying to get the plants back on line." AES is restoring service after the South Coast Air Quality Management District modified operating permits to allow continued generation.

Various reports indicate that the inspections also took place at plants owned by Southern Energy, Dynegy/NRG, Reliant and Duke Energy. Steven Kelly, policy director at the Independent Energy Producers association, said the trade group was monitoring the situation but had nothing to report about the outcome of the inspections.

At this point it is uncertain how the CPUC will use any information it gathered, or even if it will make its findings public [A. O'D.].

Prices Challenge Belief in Market

While California earned headlines for a week of emergencies leading to an unprecedented Stage Three, the Pacific Northwest power market simply went crazy. As utilities hunkered down to face subfreezing temperatures associated with an expected Arctic Blast, energy prices were reported as high as 1,200 mills/KWh for contracts through the end of December. Daily spot transactions were not quite so outrageous, but reports of daily deals being made at 750 mills/KWh were confirmed by several sources.

Off-peak power, if available, moved up in price from 200 mills to 400 mills/KWh at Mid-Columbia and the California/Oregon Border.

Bonneville Power Administration seemed to be preparing for a long, hard week, posting a declaration that it would have no surplus power to sell through December 16.

Even as some non-regulated California utilities sold their excess energy to help alleviate the Northwest's crisis, there were concerns that the Golden State was not reciprocating the assistance given to it by others during the summer crunch.

In reality, no one had much power to spare, except possibly Canadian marketers who had their choice of markets. The Dow Jones NewsWires reported that Powerex was selling up to 1,000 MW into California at non-capped prices up to $1,100/MWh, but neither the marketer nor the grid operator would confirm the figures. Dow Jones also reported that Cal-ISO paid Powerex $10 million for 1,000 MW on Wednesday, but traders had a hard time believing a $10,000/MWh price was real.

Cal-ISO, however, resorted to cutting power destined for export on Thursday as part of its Stage Three emergency, recalling 250 MW.

The California Power Exchange recorded 139 consecutive hours and counting of prices at (or above) the perceived cap of 249.9 mills and 250 mills/KWh. The only variations in price came in zonal prices with some congestion bidding pulling down bids from Arizona but driving import prices higher from the Northwest. On-peak prices on the Pacific AC Intertie averaged 406 mills/KWh Wednesday, for instance.

The PX price is not really limited to the Cal-ISO caps, but utilities have followed a policy of not accepting price bids above that level, thus pushing load into the day-of market or into the ISO's lap. Evidence of this strategy became apparent as scheduled loads on the exchange's day-ahead market dropped from over 515 GWh Monday to 439 GWh for Friday. Clearing prices on the CalPX day-of market reached 285 mills/KWh Thursday afternoon, indicating that utilities had to give up their hard stance of they wanted to secure power. Even so, there was barely 75 MW to 190 MW of supply being cleared per hour in the day-of market at the time. Decremental demand outweighed the supply by about ten to one on Thursday.

Even day-ahead prices for Saturday finally broke through the Maginot Line of caps, with late off-peak power clearing at 275 mills/KWh, and index prices edging past 250 mills/KWh.

The Southwest market was not in difficulty and utility schedulers reported healthy generation and relatively warm temperatures. Still, the crisis outside the are pulled prices at Palo Verde up to the 310 mills to 330 mills/KWh range for Friday/Saturday peak deliveries, 185 mills/KWh off-peak. Four Corners varied a bit at 313 mills to 335 mills for peak and 200 mills/KWh for off-peak power. "Those are great off-peak prices," one trader quipped.

Even the Alberta Power Pool was in a crisis, issuing an Emergency 1 declaration on Tuesday evening for nearly two hours [Arthur O'Donnell].

No Lid on Gas Prices

"The definition of really crazy is: 'Worse than the California market'" That's how one natural gas trader summed up the wild market this week. Another simply cried, "Stop the madness!"

But there was no end in sight for the runaway prices being recorded at the Southern California Border. Several sources declared $53/MMBtu as the high end of an extremely volatile price range at Topock, caused in large part by a panic to move gas into the state despite severe congestion on pipelines from Texas and New Mexico.

Shippers said it was nearly impossible to obtain interruptible capacity on the El Paso line from San Juan, causing gas to be shut in and the spread between basin and border prices to escalate. " Everyone who has gas in the basin is trying to get the spread, causing a log jam there. There's just not enough competition in interstate pipelines," one trader declared.

Still, San Juan Basin prices moved up more than 50 percent to about the $9.50/MMBtu level Thursday before easing a bit to $9.15/MMBtu.

Pipe constraints also seemed to limit how much Northern California hub prices rose, although the $35/MMBtu seen at Malin was by far higher than anyone had ever experienced.

The Alberta price also set a new peak, reaching $(C)11.30/Gigajoule [A. O'D.].

Western Electricity Prices
Week of December 4-8
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 120-815 101-124
California PX (WAC) 250 220-250
Mid-Columbia 270-800 200-400
COB 275-775 200-400
Palo Verde 200-330 152-185

Archives of the Western Price Survey for the past year are also available online.


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