Contracts Key to Stabilizing Grid

The state?s transmission system is jeopardized by the lack of power-purchase agreements, according to participants at a September 8 meeting of the state?s three major energy agencies. While no action was taken on paving the way for new contracts, top energy policy makers met to revamp their interagency Energy Action Plan to determine which key issues to focus on in the coming months. ?We can?t have any more retirements? if we want to have a 15 percent planning reserve margin, said Mary Jo Thomas, operations engineer for the California Independent System Operator (CAISO). The paucity of contracts will force usable but geriatric plants to close, as well as preventing the cash flow needed to allow older plants? owners to invest in antipollution scrubbers. Without contracts, new plants are being run inefficiently, participants said. Mirant?s units in San Francisco and Pittsburg, for example, need to install air-pollution controls (selective catalytic reduction systems), but they will not be upgraded unless Mirant is assured it can recoup its investment?and that is likely only if there are contracts for the output of the plant. Merchant generators? financial insecurity is exacerbated by the upcoming expiration of Department of Water Resources agreements. The concern about plant shutdowns is often geography-specific and is tied to the transmission system, noted Jan Smutny-Jones, Independent Energy Producers executive director. Retirements and congestion are related, he said, though the relationship is ?opaque.? Putting plants out to pasture changes the operational character of the grid. ?We need to understand where we need plants built and when and where we need transmission,? he said. Last month, the California Energy Commission released a draft study that concluded several old plants will close because of an inability to recoup the units? higher costs, further stressing the grid during times of highest electricity use, unless alternatives are put in place ( Circuit , August 6, 2004). One of those alternatives is demand-response programs. However, Don Vial, California Power Authority member, pointed out that reliance on older plants underscores the failure of current demand-response programs. The answer to aging plant retirements and the contract issue lies in the resolution of the California Public Utilities Commission?s long-term procurement proceeding, according to CAISO?s Thomas. Assuming the commission?s decision will lead to new contracts for power output, thus providing assurance to investors of an influx of capital, capacity will be there when needed, Thomas added.

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Contracts Key to Stabilizing Grid

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