Hard to Pin Calif. Plant Shutdowns Blame--huge increase in plants off line and reductions of capacity in Y2K

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Saturday February 17 10:26 AM ET Hard to Pin Calif. Plant Shutdowns Blame

By David Howard Sinkman

NEW YORK (Reuters) - However history judges California's electricity crisis, currently it looks like a whodunit with an illusive villain behind the sporadic power cuts plaguing the richest U.S. state the past two months.

Consumer advocates and some politicians accuse the utilities, many of them out-of-state, of manipulating the newly deregulated power market by shutting down power plants for maintenance in order to drive up prices.

The power producers vehemently deny these accusations, saying that the fault lies with old plants driven past breaking point by energy-hungry California. The plants have had to be taken out for urgent maintenance, the companies argue.

Given these entrenched positions and a lack of public information, finding out what has really been going on is far from easy, analysts and consultants say.

``It is impossible to determine whether a declared forced outage occurs because the plant is actually unable to operate or because this action increased the firms' profits,'' said Stanford University Economics Professor Frank Wolak, a member of California's market-monitoring Independent System Operator (ISO).

Certainly, figures show that power producers have taken down more of California's capacity to produce electricity in the past year than in the previous 12 months.

In August, for example, 3,391 megawatts of capacity was out of service in the most populous U.S. state, a 461 percent increase from the previous August. Wholesale prices have spiked as well, with the value of electricity sold in California in 2000 almost quadrupling to $27.97 billion from $7.43 billion in 1999.

And, consumer groups point out, California was able to meet demand of 45,000 megawatts last summer, but now, in the low-demand winter months, the state is suffering from rolling blackouts even though demand is less than 30,000 megawatts.

Up to 13,000 megawatts of Californian capacity was off-line in January for undisclosed reasons, consumer advocacy group Public Citizen said.

Plant maintenance typically is carried out in the winter because that is when demand is lowest. Some plant outages, such as at certain units of Duke's Moss Landing plant, are linked to extensive upgrades required to meet strict emission standards.

No Evidence Of Manipulation

The Federal Energy Regulatory Committee (FERC) says there is no evidence of manipulation by the producers. It reported Feb. 1 that plant outages in California beginning on Dec. 13 were due to maintenance problems at old plants that were run too hard in the summer.

But, critics note, FERC conducted 60 percent of its audits of California power plant outages over the telephone using questionnaires. ``FERC's inspection was like a principal calling a kid who is cutting school and asking if he is sick,'' said Mindy Spatt, media director of The Utilities Reform Network (TURN) consumer group.

Under political pressure, ISO, the traffic controller for 75 percent of the state's energy demands, began releasing daily data on the size of plant outages on Jan. 25, but not the reason why.

``Because details on why these plants are off-line is confidential, the public is literally left in the dark,'' said Wenonah Hauter, Public Citizen's director of energy programs.

Confusion over responsibility for the power shortages has also increased in recent weeks because some power producers have been reluctant to sell electricity to California's two main utilities, Southern California Edison (news - web sites), a unit of Edison International (NYSE:EIX - news), and PG&E Corp. (NYSE:PCG - news), amid fears that they will not be able to pay for it.

With so little transparency, the allegations of manipulation thrown against the producers have been flying thick and fast.

``The companies are playing with marked cards. I think consumers know when they are being conned,'' said San Francisco City Attorney Louise Renne, who is suing 13 power generating companies on behalf of the citizens of California.

The producers are just as vehement in their response.

``Quite honestly, it is getting offensive,'' said Cathy Roche, director of external relations at Duke Energy Corp. (NYSE:DUK - news), which has 3,350 megawatts of generating capacity in the state. ``The public and politicians wanted a villain, but they picked the wrong one.''

Not Just California

Incomplete information about the causes behind individual plant shutdowns and soaring wholesale energy prices is not just a California problem.

In New England, the average amount of generating capacity out of service each weekday rose by 47 percent in the 12 month period following deregulation in May 1999, said the Union of Concerned Scientists (UCS), an environmental advocacy group.

These outages have contributed to increased price volatility and higher average monthly prices, UCS said.

``By declaring some of its plant unable to run, a firm can create an artificial scarcity of generation capacity,'' said Wolak. ``The generating firm is then able to set a very high market clearing price which is earned by all of its operating units.''

But without specific plant and supplier date data, the UCS said it is not yet possible to determine definitively whether generators are withholding capacity to raise prices.

What is needed in California and New England is a full investigation plant by plant for the reason why sites were shut down or operating at less than full capacity, said David Schlissel of Synapse Energy Economist Inc., an energy research and consulting firm. He added that full disclosure of FERC's data and past figures would help explain any outage abnormalities.

Some academics say the whole transparency argument is rubbish -- there simply is insufficient capacity to meet rising demand.

``When you have an old car that you run too hard it breaks down,'' said Michael Economides, chemical engineering professor at the University of Houston. http://dailynews.yahoo.com/h/nm/20010217/bs/utilities_california_dc_35.html

-- Carl Jenkins (somewherepress@aol.com), February 17, 2001


Originally Published Saturday, February 17, 2001 ---------------------------------------------------------------------- ----------

Four Lodi power plants latest victims of energy crisis By Jeff Hood

Lodi Bureau Chief

LODI -- Four power plants partly owned by Lodi are no longer creating electricity, having worn out in an attempt to meet California's demand for power, according to Alan Vallow, the city's electric utility director.

The White Slough plant closed Sunday, a day ahead of schedule for maintenance, after workers discovered a high-pressure leak in a combustion chamber. Last week, a combustion turbine on Turner Road was shut down after a stress crack was discovered in a key component. A similar defect had been found earlier in the week at two turbines in Alameda and, days later, cracks in the same component were found in two turbines in Roseville.

Lodi is a co-owner of the White Slough plant with the Northern California Power Agency, a consortium of municipal utilities, and has a 35 percent stake in the agency's Turner Road, Alameda and Roseville plants.

"We've run them so hard, we ran them through winter when they should have been down for maintenance," Vallow said. He added there could have been a catastrophic failure had the cracks not been discovered, equating the problem to an off-balance washing machine spinning at 25,000 rpm.

"There's so much scrutiny now, you're almost not allowed to bring them down," he said, blaming state and government orders to keep them going. "We were essentially ordered to run those things to failure."

With the plants down for repairs, Lodi may be forced to buy more power at the market price. Potential exposure to the city is as high as $1.5 million in unexpected costs for February, Vallow said.

In an effort to reduce the city's risk, the Lodi City Council during a special session Tuesday will consider allowing the city manager or utility director to sign agreements committing the city to electricity or natural-gas purchases for up 10 years.

Vallow said prices fluctuate widely in a matter of hours, while getting council approval can take weeks. He said the city has missed opportunities to sign 10-year contracts for electricity costing between 6.3 cents a kilowatt-hour to 7.4 cents. Three-year deals are costing about 14 cents.

"If we don't lock down a power supply, there may not be a power supply," he said.

The council on Jan. 30 authorized the power agency to act on its behalf for long-term deals. The agency is close to a 10-year electricity agreement, legislative director John Fistolera said, but having officials from participating cities sign the contract protects agency members not involved in the deal.

Vallow added that wholesalers, who haven't been paid for all the power sold to the state's major utilities, such as Pacific Gas and Electric Co., are being more wary about who they're doing business with. The Northern California Power Agency is merely an organization, while member cities have more tangible assets.

Fistolera declined to discuss the terms of the proposed deal, but said it would allow the agency to run plants such as the one on Turner Road as it is designed -- for a few hours during the summer when demand for power is at its highest. Air-quality rules also limit the number of hours each plant may run.

"Every time we're required to run that (Turner Road) unit to support statewide reliability means those are hours that we will not have available to us to use the unit like we planned," Fistolera said.

* To reach Lodi Bureau Chief Jeff Hood, call 367-7427 or e-mail jhood@recordnet.com

"If we don't lock down a power supply, there may not be a power supply." -- Alan Vallow,

director of Lodi's electric utility


-- Martin Thompson (mthom1927@aol.com), February 17, 2001.

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