State Declares First Stage 3 Power Alert

California’s energy nightmare nearly came true Thursday as the strained electricity grid almost ran out of juice, threatening blackouts across the state.

Officials declared California’s first-ever Stage 3 power emergency at 5:15 p.m. because the transmission grid serving about three-quarters of the state was projected to dip into its last 1.5% of reserves. The emergency order was lifted about two hours later.

But the California Independent System Operator, the Folsom-based nonprofit agency that balances supply and demand on the state’s 12,500 miles of transmission wires, was able to avoid ordering rolling blackouts across the state.

That’s because the Stage 3 emergency declaration permitted Cal-ISO to bring back some power that was being exported out of state and allowed two government-controlled power entities to free up enough electricity to help keep the lights on.

“There apparently won’t be any blackouts,” Steve Maviglio, a spokesman for Gov. Gray Davis, said late Thursday. “Over the next two weeks, it will be day by day, night by night. It’s all hands on deck. We’re doing the best we can.”

Customers of the Los Angeles Department of Water and Power and many other, smaller municipal utilities around the state are largely unaffected by the electricity problems because they are not connected to the Cal-ISO grid.

This is just the latest extraordinary twist in the unfolding energy soap opera that has captured much of California as both the electricity and natural gas markets continue to behave in ways unforeseen when they were deregulated, producing threats of shortages and sky-high prices.

The day’s events are sure to intensify calls for reform of both the electricity and natural gas businesses.

On Thursday:

* Electricity demand in California peaked at nearly 32,000 megawatts while power plants that could generate about a third of that sat idle for maintenance and other reasons. Frantic calls for conservation, including asking Californians to delay turning on holiday lights until after 8 p.m., were followed by voluntary power interruptions to thousands of large commercial electricity users and, finally, the Stage 3 emergency declaration.

* Natural gas prices in Southern California hit a record $50 per million British thermal units, the standard measure for large trades, and San Diego Gas & Electric asked federal regulators to cap pipeline transmission rates to the state, which are 21 times higher than normal.

* SDG&E; requested that Gov. Davis declare an energy state of emergency to help increase electricity supplies in the state.

The San Diego utility, a unit of Sempra Energy, asked Davis to then lift air pollution limits on power plants so they can run when supplies are tightest, to require in-state generators to sell their electricity within the state, and to pledge the state’s credit to back Cal-ISO’s power purchases.

Although California avoided blackouts, the state is not out of the woods, said Jim Detmers, managing director of operations at Cal-ISO.

“Tomorrow will be just like what we dealt with today,” he said Thursday night. Monday may be the worst day of all, he said.

For the last four days, California’s power grid has teetered near the edge of collapse because growing demand has exceeded supply.

Power plants in the state representing more than 11,000 megawatts of generation were out of commission for maintenance, shutdowns caused by operational problems, or because the plants had reached their air pollution limits for the year. Pollution constraints alone accounted for about 2,700 megawatts of unavailable power, Cal-ISO said.

In addition, cold weather and low hydroelectric supplies in the Pacific Northwest sharply limited the kind of power imports that helped prevent blackouts during the summer, Cal-ISO said. Imports from the Northwest totaled only 800 megawatts Thursday, compared with a normal 3,000 or so.

A Stage 2 power emergency was declared at 4 a.m. Thursday, and Cal-ISO scrambled to find enough electricity to avoid rotating power outages. Thursday marked the 25th time this year that a Stage 2 emergency was declared, and hundreds of businesses were asked to shut off their power. These large electricity users had agreed in advance to cut power when supplies are tight in exchange for lower rates.

When a Stage 3 is declared, rolling blackouts might be ordered to keep the grid from collapsing.

Detmers said he worries about blackouts during evening rush hour because even traffic lights and street lights would be affected--adding that Cal-ISO employees took extraordinary measures to keep that from happening.

“That is the time when everyone is getting home from work. It’s dark and foggy,” he said. “The last thing I want is some bus going through an intersection and getting hit. How will I explain myself to parents?”

After the Stage 3 declaration, Davis ordered the California Department of Water Resources to free 1,000 megawatts of power by shifting the pumping of water through the massive state aqueduct system to daytime periods when electricity use is lower--but only 200 megawatts were needed Thursday. The state also took the symbolic step of keeping the lights off on the Christmas tree at the Capitol.

In addition, the Western Area Power Administration, which markets hydroelectric power from 56 federal dams, was able to send 500 megawatts to bail out California because of the Stage 3 order. Cal-ISO wrung another 250 megawatts out of the system by blocking some power exports out of the state. (A megawatt is enough to serve about 1,000 homes.)

Consumer advocate Doug Heller of the Foundation for Taxpayer and Consumer Rights said the governor needs to step in and take over the state’s privately operated power plants and get them running.

“This deregulated market is getting dangerously out of hand,” Heller said.

Said Davis spokesman Maviglio: “The governor said California is not yet ready for deregulation. This is another example.”

Complications in the Market

Cal-ISO’s electron hunt was further complicated Wednesday and Thursday when Powerex, the electricity marketing subsidiary of BC Hydro, British Columbia’s electricity utility, refused to sell power directly to Cal-ISO.

Powerex advised the agency that it had reached its credit limits with the relatively small power marketing company, according to a letter sent by Cal-ISO Chief Executive Terry Winter to Steve Frank, chief executive of Southern California Edison.

Powerex would sell power, at $1,000 per megawatt-hour, only if Cal-ISO were to obtain a letter of credit or if an investor-owned utility bought the power, Winter said. Cal-ISO’s legal mandate is to maintain system reliability at any cost.

“This letter will confirm that the ISO believes that it is absolutely necessary that this power be secured from Powerex, at least for the next two days, that we do not believe that there are any other resources available that could satisfy this urgent need for power (this appears to be the last available resource that could meet the need), and that we see no other way to address the severe reliability need that we currently face, short of rotating blackouts,” Winter wrote.

The $1,000-per-megawatt-hour price--four times the usual maximum price in the California market--was “the best price that we have been able to negotiate for this power,” he said in the letter.

SCE agreed to buy the power for $10 million Wednesday and $13 million Thursday, spokesman Clarence Brown said.

“We elected to jump into the breach,” Frank said. “Obviously, this is not the kind of thing we would want to do on a regular basis, but it is most indicative of what we have been saying for a long time: that having strong utilities to serve the needs of the state is a good thing.”

SCE, the utility arm of Rosemead-based Edison International, has used that argument with the California Public Utilities Commission to push for an end to the current retail rate freeze. The utility further seeks rate increases to pay down its nearly $3-billion debt arising from six months of record high wholesale power costs that it cannot pass on to customers.

PUC President Loretta Lynch on Thursday turned aside those requests, and similar ones by Pacific Gas & Electric, calling them “premature.”

Cal-ISO Chief Financial Officer Bill Regan said the Powerex situation did not indicate a fundamental problem with his agency’s credit worthiness.

Instead, he said, it reflected Powerex’s desire to limit its sales to one client, especially because it takes Cal-ISO about 10 weeks to pay its power bills after obtaining the funds from market participants, largely SCE, PG&E; and SDG&E.;

Powerex declined to comment on the matter.

PG&E; was approached by Cal-ISO to buy electricity from Powerex but declined, spokesman Ron Low said.

“We are very concerned that the ISO, in an effort to keep the lights on, is paying ransom to the out-of-state generators,” Low said. “The ISO needs to be more disciplined in its purchase of power because these outrageous wholesale costs will ultimately be paid by our customers.”

The Procedures to Reduce Use

In a Stage 3, if blackouts are needed, Cal-ISO tells SCE and the other utilities how many megawatts of power each needs to dump off the system involuntarily through rolling outages to keep system reserves between 1.5% and 5%.

If this is not done, there is an immediate risk that large portions of the power grid could fail, which would be more widespread than the rolling outages and would take longer--probably hours--to bring back online.

Each block of customers selected would lose power for about an hour, and then their power would be restored while another block of customers would lose their power. The blackouts would continue until the crisis is over.

On June 14, voltage problems in the San Francisco Bay Area led to rotating blackouts of about 90,000 customers. The incident lasted about three hours.

In its Stage 3 plan, SCE has grouped customer circuits in such a way that the outages are scattered over a wide area. That way, no single community would be completely blacked out.

Only “nonessential” users would be blacked out. Considered essential are customers such as hospitals without backup power, police stations and fire stations. (Homes that are very near essential users, and therefore on the same circuit, also would avoid the blackouts.)

The utilities are given as little as 10 minutes to institute the blackouts, which does not allow time to notify customers individually. The only warning they would get would come from the media, particularly news radio stations.

*

Times staff writers Dan Morain and Liz Pulliam Weston contributed to this report.

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California on Alert

Thursday’s first-ever Stage 3 alert stopped short of blackouts but represented the most dramatic development yet in California’s continuing power crisis. The alert affected the 75% of the state served by the three big investor-owned utilities--Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric.

Power Alerts

The California Independent System Operator, which runs the electricity grid for most of the state’s power users, has declared 42 Stage 1 and 25 Stage 2 power emergencies this year. How the system works:

STAGE 1

Conservation. Declared when electricity operating reserves fall below 7%. The state’s three big utilities are asked to urge businesses and consumers to conserve power by doing such things as turning off unneeded lights, machinery and appliances, setting thermostats at 68 degrees or even turning on holiday lights later in the evening.

STAGE 2

Voluntary power cuts. Declared when electricity reserves fall below 5%. Utilities ordered to cut power to residential air-conditioner customers and businesses that have agreed to voluntary power interruptions in exchange for discount rates.

STAGE 3

Rolling blackouts. Declared when electricity reserves fall below 1.5%. Utilities ordered to reduce power immediately, and rotating power outages become likely. Only essential power users--hospitals without backup generators, police and fire stations--are exempted from the blackouts, which would be scattered across the utilities’ territories and typically last about an hour.