CAISO Grid Costs Down, Reliability Up

California's power grid is more reliable and economically efficient than ever, according to a report that the California Independent System Operator released February 26. "Over 2006, we have achieved the highest reliability ever in the history" of CAISO, said Yakout Mansour, grid operator president and chief executive officer. "At the same time, the cost has gone down." Meanwhile, generators and utilities are concerned that a proposed pumped-storage project is uneconomical and may disrupt present market forces that lowered the grid's operation costs. CAISO reduced the cost of maintaining reliability on the state's power grid by $192 million last year. Reliability costs have fallen for the past two years, from $1.1 billion in 2004 to $670 million in 2005 and $476 million last year. The ratings are based on a Western Electricity Coordinating Council evaluation. Mansour attributed the savings largely to the state's resource-adequacy policy, which requires investor-owned utilities to procure enough generation capacity to maintain a 15 to 17 percent supply cushion above projected electricity demand. Contracts entered by the utilities under the policy have enabled the grid operator to trim reliability-must-run contacts that ensured system stability in the past, said Mansour. This year, CAISO reduced the number of such contracts from 120 deals representing 9,963 MW of generating capacity to just 65 deals representing 3,995 MW of capacity. Those contracts are between the grid operator and generators, which are paid a premium to keep their power plants ready to produce if CAISO's supplies run short. The contract reductions should further reduce grid operating costs this year, the chief executive said. The savings also result from new grid control technologies and closer cooperation among CAISO staff, utilities, and generators. Overall, Mansour said, wholesale electricity rates in California last year stood at their lowest level in almost 10 years, since well before the price spikes during the state's 2000-01 power crisis. In the coming years, the state's grid also is expected to benefit from $3 billion in transmission investments approved by CAISO and 1,100 MW of new generating capacity added over the past year, according to Mansour. CAISO, however, is grappling with the state's efforts to increase use of renewable power - an intermittent resource. "Pumped-storage projects can play a role," he said, "provided they come at the right cost." A project under serious consideration is sponsored by Nevada Hydro. This 500 MW Lake Elsinore Advanced Pumped Storage (LEAPS) Project would store the wind power by using it to pump water from the lake to an uphill reservoir and then release it downhill to make hydropower when electricity is needed. For every 500 MW the facility would generate, it would use 600 MW of power, making it a net energy loser. According to Jim Kritikson, an energy consultant, it would include a 500 kV transmission line that would link Southern California Edison's and San Diego Gas & Electric's systems and eventually enable wind power to be transmitted from the Tehachapi Mountains, where a major project is under development. Some observers note that renewable resources, such as wind, are usually unavailable at night. This means that the pumped-storage facility would have to use any excess power available to pump water uphill for storage during late afternoons, which are times of peak demand. CAISO is involved in talks with grid participants that could be crucial to the outcome of the proposed LEAPS facility (Circuit, Aug. 25, 2006). At the request of the Federal Energy Regulatory Commission, the grid operator is considering whether to allow recovery of the project's costs under its transmission access charge and operate the facility once built. CAISO hopes to take a position on the question before FERC in May. Many power industry companies oppose CAISO's plan to operate the pumped-storage facility. The objections include the cost of the project under its transmission access charge. Calpine, Williams Power, and investor-owned utilities, for instance, have voiced their opposition in recent filings with FERC. In respective filings with the federal commission on February 15 and 16, Calpine and Williams, which markets power for AES in the area, indicated that LEAPS could encroach on their businesses in the energy and ancillary services markets. Earlier on January 12, both Edison and SDG&E voiced concerns to federal regulators about the cost of the project and its proposed high return on equity, at 14.5 percent. Ultimately, Kritikson predicted, even though the transmission line would cross only federal land, the California Public Utilities Commission will step into the decision-making process on LEAPS because it would require new substation facilities to interconnect with neighboring investor-owned utilities.

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CAISO Grid Costs Down, Reliability Up

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