Power Sales Halted by New Pricing Curbs

Confusion over new federal price restrictions prompted several electricity sellers to back away from sales to California on Monday afternoon, pushing the state closer to blackouts, energy officials said.

The state lost sales that would have provided enough electricity to supply more than 1 million homes, said Ray Hart, deputy director of the California Department of Water Resources, which has been buying much of the state’s electricity since January.

At least five companies producing or marketing power “are telling us that since they don’t know what they’re going to get paid, they’re not going to take the risk, and so they’re not going to sell the energy,” Hart said.

The electricity sales fell through after power consumption soared in summer heat and grid operators were forced to declare a Stage 1 emergency, meaning reserves had dipped below 7%. It was the first such emergency since May 31.

Under a June 19 order by the Federal Energy Regulatory Commission intended to bring down wholesale electricity markets across the West, a power emergency in California triggers the setting of a new price limit that applies to power plant owners from Washington to Arizona.

The new price is supposed to be based upon whatever it costs to run the most inefficient, expensive power plant selling electricity to California grid operators during the first full hour of a Stage 1 emergency.

But much uncertainty remains about exactly how and when the new price is supposed to be established under the commission’s order, and that apparently drove away sellers, Hart said.

Shortly after the state issued the Stage 1 alert at 1:30 p.m., putting the old price limit of $90 per megawatt-hour in question, companies that had committed to provide the state electricity hour by hour Monday afternoon backed out, Hart said. The companies include TransAlta Energy Marketing of Oregon, Constellation Power of Baltimore and Sempra Energy Trading, a unit of the San Diego-based energy conglomerate.

Forced to dip even deeper into the state’s power reserves and declare a Stage 2 emergency, water agency officials called the federal energy commission’s hotline for clarification about what the new price should be and when it should take effect. They got no answer.

Hart said commission officials reached at home promised to try to clarify their order today. One outstanding question is what obligations power suppliers have to deliver electricity to California in an emergency.

Both buyers and sellers in the market agree that the new price, when it is set, will probably be lower than $90 per megawatt-hour because the price of natural gas, the main fuel in California power plants, has dropped lately.

Temperatures soared several degrees higher Monday than grid operators had anticipated. But they said they expected to avoid rolling blackouts in part because the Bonneville Power Administration in Portland, Ore., had agreed to provide several hundred megawatts of Pacific Northwest hydropower each hour in exchange for a return of electricity from California later this summer.

“Bonneville is giving us emergency power to get us through,” Hart said.