Location, Location, Location?of Supplies

By Published On: June 19, 2004

California Public Utilities Commission president Michael Peevey called on utilities to line up energy contracts for this summer through next summer in an attempt to support system reliability even if less expensive deals fall by the wayside. The June 10 ruling is part of the commission?s resource-adequacy efforts to keep the lights on and represents a shift from current policy, which holds that utilities go after ?least-cost? contracts. Language in several procurement decisions will be changed, said Peevey, to clarify that utilities should not limit their calculations of least cost to their own direct costs but need to factor in costs of both system reliability and local reliability within their service territories. Peevey?s ruling is an ?eye-opener,? according to Independent Energy Producers executive director Jan Smutny-Jones, because it recognizes that location of resources is a factor in avoiding service disruptions. ?If Edison can?t get [energy] to its customers, the fact that it?s cheap doesn?t do any good,? he said. The ruling could also mean that attributes other than strict energy price carry weight for long-term procurement, Smutny-Jones added. Peevey?s ruling was prompted in part by a letter sent that same day by the California Independent System Operator to Southern California Edison. The missive expressed the desire that Edison schedule so supplies aren?t caught up in congestion and that it consider local reliability requirements in scheduling. Since supplies have been hung up, CAISO said, it has been forced to scramble for more expensive energy in real time, adding to reliability concerns. To ensure that there is enough juice available, CAISO must determine whether capacity is ?in the right place,? said Peevey. He noted that the grid operator needs available generation in certain locations to address transmission constraints. Direct-access and muni customers will be asked to share added reliability costs, a notion that sounds reasonable to Gary Ackerman, Western Power Trading Forum executive director. ?It?s impossible to deny that direct-access customers also benefit from a boost in reliability,? said Ackerman. But he added that utilities may ?play games? with costs needed for reliability and expenses for least-cost energy. A draft decision is expected in time for a vote at the July 8 commission meeting.

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