AES Plans to Build More Power Plants

Independent power supplier AES Corp., encouraged by an improved outlook for California’s electricity market, said Monday that it planned to build more generating plants in Southern California.

AES said the new power plants, which could take several years to begin operation, would “reduce the risk of power shortages” in the state. But some industry observers, while applauding AES’ action at a time when state power usage is at record highs, caution that California still faces potential power shortages in the next three years.

Although AES is planning to add as many as 500 megawatts of electricity -- enough to power about 375,000 homes -- California is poised to lose 4,000 to 8,000 megawatts in the coming years from aging power plants that are expected to be shuttered.

Indeed, the California Energy Commission today is scheduled to hold another public hearing on the shortage threats, which include bottlenecks in the state’s power transmission, a paucity of new generation plants and steadily rising consumer and business demand for electricity.

Still, AES’ move marked one of the rare occasions lately when an outside power supplier was willing to add extra resources in California, where energy policies have been in flux since the state’s power crisis in 2000 and 2001.

“Last year at this time, no one was talking about investing in the California market,” said Jan Smutny-Jones, executive director of the Independent Energy Producers, a Sacramento trade group that includes AES. “This is a major move in the right direction.”

AES, based in Arlington, Va., said it was encouraged by Gov. Arnold Schwarzenegger’s “vision for the future” of the industry, including his recent veto of a bill that would have made it easier for utilities to build their own power plants, crimping the ability of private generators such as AES to compete for business.

Schwarzenegger has said he wants to let large customers shop around for cheaper power not only from the utilities -- Edison International’s Southern California Edison, PG&E; Corp.’s Pacific Gas & Electric Co. and Sempra Energy’s San Diego Gas & Electric Co. -- but also independent power producers such as AES.

AES believes “that many potential suppliers will be able to come in and serve the potential looming capacity shortage,” said Mark Woodruff, AES vice president for the West. He said the additional generating plants would be located at AES facilities in Santa Clarita, near Riverside and at a third site yet to be announced.

The power plants would be “peakers” -- relatively inefficient generators intended to be used at times of highest demand. AES said the plants could be operating as early as 2006 but added that it wouldn’t build them until contracts were signed for most of the output. AES operates four major natural-gas-fired power plants in California capable of generating more than 4,000 megawatts of electricity.

Stephanie McCorkle, a spokeswoman for the California Independent System Operator, or Cal-ISO, which operates most of the state’s power grid, said AES was “going to be welcomed with open arms by the ISO.”

She noted that the new plants would be near regions where fast-growing populations are putting heavy demands on the state’s electricity capacity. AES’ new generation facilities in those areas should help relieve some of the transmission snags, she added.

This summer, the state set records for electricity usage seven times, the highest coming on Sept. 8 when California’s peak usage hit 45,597 megawatts. With current supplies constrained, analysts are worried that any disruption in power transmission or deliveries could lead to blackouts in the state.

“We will need new generation in California,” said Claudia Chandler, assistant director of the California Energy Commission. A report being prepared by the agency predicts that more than 4,000 megawatts of power could vanish by 2007 because of “older power plants that could be potentially shut down because of environmental and economic factors.”

Chandler said there also were dozens of other proposed power plants that have received approval from the commission but are still “waiting for the right signals from the state, specifically contracts that would have to be approved by the Public Utilities Commission to bring these new power plants on line.”

The California Public Utilities Commission is drawing up rules governing the competitive bidding process for suppliers interested in selling electricity to Edison and other utilities. In addition, the PUC is working on regulations regarding the electricity reserves that the utilities must maintain.

AES was among the power suppliers accused of worsening California’s 2000-01 energy crisis by withholding power, among other things. AES has denied any wrongdoing.