Few Fixes for State’s Power Predicament

The alarm bells on California’s stressed-out power grid sounded early this year.

On July 21 and 22, the agency that operates the state’s 25,000-mile electricity transmission system declared its first Stage 2 power emergencies of the summer. The alerts -- triggered by unexpected generator breakdowns -- were the first in the state since 2003 and revived ugly memories of the rolling blackouts that plagued Californians during the energy crisis of 2000-01.

Worse, they came a month earlier than experts were predicting as unusually hot weather blanketed California and much of the West -- a disturbing sign that the worst-case scenarios power officials talked about in the spring could be coming true.

So far, it has been mainly luck and the fact that more power plants haven’t gone down that have held blackouts at bay. A wave of prolonged, triple-digit weather in late August or early September could leave some parts of the state in the dark.

“Southern California is hitting peaks [in demand] in July when, historically, it hits its peak in September,” warned John Geesman, a member of the California Energy Commission. “Does that mean there’s worse ahead?”

The forecast isn’t promising. The U.S. Climate Prediction Service expects temperatures to be 5 to 10 degrees above normal across California and the West from August through October. If that prediction comes true, analysts say, there’s a good chance for more power emergencies -- and possibly blackouts -- in the coming weeks.

The dire prediction comes four years after an energy crisis that cost California billions of dollars and helped unseat Gov. Gray Davis. It also drives home the fact that very little has been done in the intervening four years to help the state avert a repeat of that traumatic experience.

California still doesn’t have enough power plants to meet the demands of its growing population and expanding economy -- a situation made worse by the fact that much of the population growth is occurring away from the cooler coasts, in sizzling interior areas such as the Inland Empire and Antelope Valley. And much of the electricity that is being produced often can’t be sent to where it’s most needed because of the state’s outdated, congested system of high-voltage transmission lines.

“The energy picture in California is not a whole lot prettier than it was under Gray Davis,” said Stephen Conant, senior Western power analyst with Energy Security Analysis Inc.

And as tight as supplies are this year, experts expect conditions to be even more tenuous in the summers of 2006, 2007 and 2008.

Indeed, the hangover from the state’s disastrous attempt at deregulating its electricity market in 1996 continues to bedevil efforts to provide the Golden State with adequate electricity supplies.

“Part of it is the battle going on between the governor and the Legislature,” Conant said. “Part of it is the incompetence of the regulatory apparatus. Part of it is uncertainty over how to best” generate more electricity.

California’s fumbling, analysts say, contrasts with progress made by East Coast policymakers, who managed to open their electricity markets and boost generation with few false steps. A widespread heat surge last week spurred record electricity use across the East, South and Southeast, but grid operators reported no significant problems.

“They have enjoyed a surplus of power,” said Michael Shames, director of the Utility Consumers Action Network, a San Diego ratepayers group.

In California, regulators’ slow and generally bureaucratic approach to solving the state’s power predicament -- complete with numerous public hearings, workshops and legal proceedings at both the California Energy Commission and the California Public Utilities Commission -- often appears at odds with the state’s growing hunger for electricity.

Indeed, the unexpected early surge in demand for electricity this summer in the fast-developing hinterlands of the Los Angeles Basin and the high desert beyond has grid engineers “scratching their heads” in concern over the worsening electrical supply picture, said Jim Detmers, vice president of the California Independent System Operator, which manages most of the state’s power grid.

A heat storm that began building in early July throttled the West with abnormally high temperatures from Portland to Phoenix.

After two weeks of sweltering weather, temperature records were being broken around the West and in several California cities, and a half-dozen or so electricity-generation power plants that had been running flat-out for days began to break down. Two thousand megawatts of generation capacity -- enough to run 1.3 million homes -- went down July 21. On July 22, more than 3,000 additional megawatts were lost to power plant failures.

Southern California Edison Co., which serves 13 million people in Los Angeles, Orange and inland counties, set a record July 21 for electricity consumption. The Los Angeles Department of Water and Power, serving 3.8 million city residents, set its own records both July 21 and 22.

Meanwhile, the electricity that California imports from other states was running into bottlenecks created by overtaxed transmission lines, lowering the voltage needed to keep power moving through the system. Reserves of available power, which normally should stay above 7% of total demand, plunged to 3.7% on July 21.

Although cooler weather last weekend ended the emergency, the Stage 2 alerts, which basically call for conservation but also can result in voluntarily power interruptions, came as a surprise -- and a warning. Continued heat, combined with trends in population and economic growth, all but ensure that electricity reserve margins could reach “zero or something less” by as early as next year, Detmers of Cal-ISO said.

Electricity demand in Southern California, which is forecast to grow by close to 2% annually over the next 11 years, is being fueled by an exodus of families and large commercial retail and distribution centers from coastal areas to the torrid but lower-cost interior.

While Los Angeles County’s overall population grew by 1.2% in 2004, the county’s high desert cities of Victorville, Palmdale and Lancaster grew by 10.7%, 4.1% and 3.5%, respectively. The state energy commission estimates that it’s about seven times more expensive to heat and cool a 1,700-square-foot house in Lancaster than one in Long Beach.

But construction of new power plants -- putting “steel in the ground” as they say in the business -- is lagging badly behind the rush to the exurbs. At the same time, older power plants -- the ones most likely to fail during times of maximum consumption -- could be forced into retirement by mechanical or financial constraints.

Analysts estimate that at least 1,000 net new megawatts -- construction of new power plant minus retirements of older plants -- must be brought online each year in California to keep up with growth in population and the economy.

Projections for the next three years are sobering: Only 4,106 megawatts of new plants are slated for completion, while plants producing as much as 8,439 megawatts could be taken out of service.

If investors were willing to put up the money, analysts say, most of the units headed for retirement could be replaced by modern, efficient, natural-gas-fired turbines within two years. But power plant developers already are sitting on approved permits to build plants capable of generating up to 8,500 megawatts and few applications for additional plants are being submitted.

Meanwhile, “the market is screaming for new generation,” said Kent Robertson of San Jose-based Calpine Corp., which has yet to secure long-term contracts for the power generated by two big plants -- one near Bakersfield, the other in San Jose -- it finished just before summer.

The slowdown, market players say, is the result of a “chicken and egg” conundrum: Investors won’t finance new power plants in California unless developers secure at least a 10-year contract with a utility to buy the power. And utilities such as Southern California Edison -- driven to bankruptcy or near bankruptcy during the energy crisis -- counter that they won’t sign the contracts unless they get assurances from state lawmakers that they won’t lose potential customers to an expanded, deregulated market.

Such assurances aren’t likely anytime soon.

Democratic lawmakers are at odds with Republican Gov. Arnold Schwarzenegger over how the state’s electricity market should function. Their inability to agree on market-reforming legislation led to the drafting of a ballot initiative -- Proposition 80 -- that attempts to tackle some of the issues bogged down in Sacramento. Although Proposition 80 has so far survived efforts to remove it from the Nov. 8 ballot, critics contend that it would only further muddle the state’s energy situation.

State regulators, meanwhile, are taking a piecemeal approach to the problem, trying to put together an untested hybrid market that borrows large elements from both unregulated, free-market models and rate-based, regulated models.

“Here we are four years after the crisis,” power analyst Conant said, “and [state officials] are still trying to develop a cohesive energy policy.”