Demand for Electricity Tests Power-Grid Operator
Electricity first flowed from a water-driven powerhouse in this city in 1895, running 22 miles down a single wire to move streetcars and light the Capitol in downtown Sacramento.
Today the electrical cord for California’s trillion-dollar economy runs through here, though it’s tougher to find than a wire strung across oak-studded foothills. In an unremarkable office building in this city are the banks of computers and 408 employees who control California’s electron freeway. They call themselves the California Independent System Operator, or Cal-ISO.
Every four seconds this nonprofit, 2-year-old creation of the Legislature balances California’s consumption of electricity against the energy poured into three-quarters of California from power plants here and across the West.
This summer, for reasons far more profound than hot weather, that’s a nerve-jangling job, and the system operator has shot out of obscurity lately with news of rolling brownouts, a barge-based power plant on San Francisco Bay, soaring electric bills in San Diego and price caps in what is supposed to be an unfettered market for electricity.
“The management and staff at the ISO have been put under incredible stress over the last several weeks, trying to keep the lights on,” said Jan Smutny-Jones, head of the board governing the system operator.
Rarely has California’s wiring been more volatile or valuable.
It is two years since deregulation of the state’s $28-billion electrical industry was launched and a decade since the construction of significant new sources of energy. Electricity consumption is rising at the pace of about two major power plants per year and a computer-based economy is more dependent than ever, not just on electricity but on electricity that flows without surge or sag. Suddenly it seems the seventh-largest economy in the world cannot take power for granted.
“The system is severely, severely stressed,” said Daniel Nix, a deputy director of the California Energy Commission. “We’re in a transition period.”
“Valley of despair” is what S. David Freeman, general manager of the Los Angeles Department of Water and Power, calls it. Before he took over the DWP, Freeman helped establish Cal-ISO, and he credits its staff with doing an excellent job.
“They’ve got a new system that hasn’t got its britches on and the old system has been abandoned,” said Freeman. “They’re relying on a marketplace that’s about as volatile as a Mexican jumping bean.”
As gatekeeper of the power grid, the system operator is supposed to act like an air traffic controller. Its job is to regulate the flow of electricity on the high-voltage transmission lines built and once controlled by Southern California Edison, Pacific Gas & Electric Co. and other private utilities.
When lawmakers voted in 1996 to open California’s electrical market to competition, they figured those utilities would enrich themselves and stifle competition if they controlled the power lines. Better to have a nonprofit guardian, lawmakers figured.
But air traffic controllers aren’t supposed to set the price of airplane seats, and that’s the unenviable position of Cal-ISO lately, said Smutny-Jones.
Imposing Price Cap
When a heat wave hits and private utilities have failed to order enough electricity a day ahead to satisfy their customers’ air conditioners and computers, it’s up to Cal-ISO to find the electricity to fill the gap and keep the transmission lines humming.
“We’ve had several days in the last several weeks where the ISO has had to go out and find, say, 12,000 megawatts of power in a few hours, and when you do that you pay through the nose,” said Smutny-Jones. After the system operator was forced to pay the record price of $9,999 per megawatt July 13, 1998, its board of governors imposed a price cap that now stands at $500 per megawatt. (For comparison, the city of Los Angeles was consuming 4,248 megawatts of electricity at 3:26 p.m. Friday, according to DWP.)
Among those pushing to lower the price cap to $250 per megawatt--to be considered by the 26-member board of governors today--is state Sen. Steve Peace (D-El Cajon), a chief architect of the 1996 deregulation law. Unlike most Californians, his constituents are not buffered from soaring electricity costs. That’s because San Diego Gas & Electric is the first utility under the 1996 restructuring law to finish selling off its assets and thus free itself from a Legislature-imposed freeze on rates.
In the last 45 days the electricity portion of homeowners’ monthly bills in San Diego has increased by $47, or 240%, on the average.
“This is just the beginning,” said Michael Shames, executive director of Utility Consumers’ Action Network in San Diego. “This is obscene.”
For the rest of California, said Shames, San Diego consumers are “the ghost of summer future.”
In this new electricity world, what hurts San Diego consumers has helped Los Angeles, whose citizen-owned utility is in the “either smart or lucky” position of having enough electricity from its hydropower, gas and coal-fired plants to sell to Cal-ISO, Freeman said.
“We’re making a terrific profit,” he said, selling for 75 cents a kilowatt-hour electricity that costs 7 or 8 cents to generate at most. The profit--as much as $5 million on the hottest days--is being used to shrink the department’s debt.
Still, Freeman said he would support a lower price cap.
“They shouldn’t have started the era of competition until there were enough power plants and transmission lines to be sure you had an adequate supply,” he said.
Energy experts say there would be more power to sell in California if rapidly growing cities such as Phoenix and Las Vegas weren’t sucking up what had been surplus power on the electrical grid that covers the West, from British Columbia to Baja California.
A hiatus of roughly a decade in the construction of major power plants in California doesn’t help, either. Nervousness about deregulation dissuaded private energy producers from investing in California until recently. The state has approved construction of five new plants since 1996, with 14 more in the works, said Nix, but it will be several years before those new generators pump electrons into the grid.
Even that won’t be enough to guarantee reliability. Places such as San Francisco, the Silicon Valley and San Diego suffer from inadequate transmission capacity, experts say, so even if power plants are generating enough electricity to meet demand, it can’t reach customers. On June 14, that’s what happened in the San Francisco Bay Area, when Cal-ISO ordered the Pacific Gas & Electric Co. to cut off power to 97,000 customers for as long as 90 minutes.
On June 30, Cal-ISO staff proposed installing a floating power plant on a barge in San Francisco Bay to help meet demand in that region, which shot up 10% between June 1999 and June 2000.
Such a plant probably couldn’t obtain permits and start operating until next summer, if at all, say Cal-ISO board members. In the meantime, some businesses are taking care of themselves.
Bob Hepple, president of c*Power, a four-month-old company that builds small, on-site power generators for data centers, telecommunication companies and other firms, said business is “explosive.”
“We have rolling brownouts . . . in the high-tech capital of the world,” he said. “They’ll pay millions to make sure their power doesn’t ever go out. They’re starting to realize the fragile nature of the grid.”
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Power Up
California’s electrical system is most stressed on hot summer days when peak demand -- the total draw on the electrical grid at any instant -- soars. The chart below shows how that peak demand has increased since 1990. It is expected to grow at an average annual rate of 1.7% over the next decade.
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POWER FACTS
* California’s electrical grid offers 99.9% reliability, meaning that a customer can expect about eight hours of power interruption each year. High-tech industry officials say they need “six 9 reliability” -- reliability of 99.9999%, or possible interruptions of eight seconds each year.
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* On average, California imports from other states 25% of the electricity it consumes.
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* So far this summer, the California Independent System Operator, which controls the electrical grid spanning three-quarters of California, has declared four Stage 2 alerts in which power reserves are so low that large commercial customers are asked to voluntarily cut back power consumption. Four such emergencies were declared in 1998, and one was declared last summer.
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* Air-conditioning accounts for 28% of California’s peak demand for electricity, with half of that demand in homes and half in commercial and industrial buildings.
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Sources: California Independent System Operator, Silicon Valley Manufacturing Group, California Energy Commission, electric power guide at About.com
