JUICE: A Three-Hour Tour

Since the electricity crisis swept much of deregulation out to sea, we have been left with a "hybrid market." Few, however, are asking what this means. Or how this mix and match of new utility-owned and generator- owned power supplies will shake out. The state's three investor-owned utilities, as well as the splintered and increasingly desperate private generators, are worlds apart as to where the energy industry is headed. There is no agreement on who gets how much, at what price, and under what terms. And regulators aren't providing much direction. Prospects are not rosy for the generators. The utilities are in the driver's seat because Calpine, Dynegy/NRG, and other power producers can't get financing for projects without multiyear deals. Long-term contracts are pretty much generators' only opportunity to survive. Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric are, in essence, the only power buyers and are far stronger financially and politically than the shrinking pool of generators. Plus, what the utilities need for supplies-when, where, and under what terms-is a ferociously defended secret. (Thank you, California Energy Commission, for trying to shed light on it.) After listening to regulators and representatives from the utility and generator communities for clues as to how to reach the promised land of the hybrid market during the Independent Energy Producers conference early this week, I felt I was on Gilligan's "three-hour tour" -the one that turned into a sitcom lifetime. A few weeks earlier, I led my own "three-hour tour." It was a hike in the mountains above Fallen Leaf Lake where independent generators hold their annual conference. For a more direct and scenic route that bright early morning, I thought it would be fun to go off trail. All went well the first half hour. Then the scree-covered slope we descended got steep-very steep. After slipping and sliding down that slope, things went from bad to worse. Turning back was not an option. We whacked through nearly impenetrable bushes, skirted cliffs, and crossed and punched through beaver dams. My fellow hikers began singing Gilligan Isle's theme song, "A tale of a fateful trip . . ." After extracting ourselves from the waist-deep muck, and many scratches and scrapes later, we finally reached our destination-just before sundown. Like the state's hybrid electricity market, turning back isn't really an option. Punching through is difficult; the right path is unclear. And we're all getting dirty trying to find our way. So, back to the basics. Here's the theory: In a hybrid market, utilities and independent producers provide checks and balances on each other to fend off market power and drive costs down for consumers. The three utilities, generators, regulators, and consumer groups all agree there has been little headway in repowering old plants or building new ones to meet growing demand. "No real progress has been made to get steel in the ground," said Roy Kuga, PG&E vice-president. Now the reality. Utilities are moving the hybrid market toward a "my"brid one. Edison says it's not considering any long-term deals outside the renewables market because it has what it needs. It already has the Mountainview power project-a 30-year deal with an unregulated affiliate. It plans to invest almost $700 million in new steam generating units for its San Onofre Nuclear Generating Station to give the huge facility an opportunity to run beyond this decade. SDG&E isn't looking for new supplies. It has the Palomar plant developed by an unregulated affiliate. It's trying to get out of its supply bind with new transmission. Sitting in limbo is the Otay Mesa project, a deal with Calpine as the builder. The California Public Utilities Commission is reconsidering approval of the Otay Mesa no-bid contract at the urging of consumer advocates, and there are doubts that the plant will come on line in early 2008, as planned. PG&E is reviewing bids for long-term power contracts, but it probably won't yield much for generators. That is, it's unlikely the utility will suddenly proffer a bundle of long-term contracts for new outside-owned power plants when it's been telling the financial community for a year that it plans to get back into the power plant building business. The utility will likely pick up Mirant's Contra Costa facility as a result of the generator's bankruptcy deal. Like Edison, it is investing in new steam generators for its nuclear plant in hopes that the plant will operate beyond this decade. It's buying half the output of Duke's Morro Bay plant and could pick up the deeds to both the Morro and Moss Landing plants for a song as Duke just put them up for sale. During and after the crisis, generators were hammered for their greed-driven market-power abuses. Now, as we attempt to reach a stable hybrid world, the market-power piggy award is handed to the utilities. This was a nonissue for them in the pre-deregulation, vertically integrated utility era because there weren't other buyers or sellers. The buyers' market-power accusations don't appear to concern federal regulators. Joe Kelliher, Federal Energy Regulatory Commission chair, who is very pro-competition, said the "utilities' refusal to buy power doesn't equal market power." He acknowledged that in place of buying supplies from third parties, utilities are self-building. That shift, however, ?may be temporary," he said. It may be temporary, and there are lots of unknowns. But this trend does not bode well for the development of a hybrid market that looks like the best way to get a better product-cleaner and more efficient energy-at a lower cost. Add to the picture that Duke is exiting the state energy market, Mirant is mired in bankruptcy, and Calpine is in a tottering financial position. Thus, our hoped-for hybrid market is looking more like a boat off course. Each effort to adjust the rudder steers it away from the land of market checks and balances toward a shore increasingly controlled by utilities. After listening to myriad sober and not-so-sober debates earlier this week, it was challenging trying to figure where we're going as fuel prices soar. On everyone's mind were issues including: Will the supply cushion requirements get us partway to where we want to go? Should we launch a capacity market, making way for short-term trades in plant capacity? Will a capacity market feed into the grid operator's endless market overhaul? How much chaos could the reregulation initiative, Prop. 80, add? In short, a three-hour tour. Yes, the captain is trying to find the rum. The professor is still working on the coconut radio satellite uplink. Whether Gilligan gets a great idea for getting everyone off the island before it's too late remains to be seen. In the meantime, hold on to your life vests.

Over 11K Stories!

| Independently Powered Energy News

JUICE: A Three-Hour Tour

vdharadmin

Related Posts

Gas & Electricity Costs Rise More, High Heat, Fires and Tight Supplies Likely

SDG&E Seeks 19% Revenue Hike

Air Regulators Pitch Heavy Use of Carbon Capture to Slash Emissions by 2045

CPUC Resource Adequacy Leaves Issues Unaddressed