Power Prices Low Despite Demand

By Published On: July 13, 2007

Despite the increased energy demand so far during the first few weeks of summer, supply prices have been static. The $40/MWh to $75/MWh cost range–even as the California Independent System Operator was near calling Stage 1 alerts–is not even close to the real-time energy cap of $400/MWh. The reason for this defiance of the basic rule of supply and demand, according to grid operator spokesperson Gregg Fishman, is that the various trading entities are doing more planning ahead. “Last week as we saw a lot of load being forecast. Utilities and load-serving entities saw that and went out and pursued energy to meet that expected demand,” Fishman explained. He added that there is a pre-scheduling and short-term contracting. “Entities are purchasing energy in advance, even if it’s only three- or four-day contracts.” Buyers learned lessons from years past when short supply drove prices up significantly, according to Fishman. Industry representatives did not return calls for comment by press time. The advance purchasing was enough to prevent a price spike last week, when a heat wave led to increased electricity demand. That was coupled with a strain on the power grid caused by various factors, including a small plane crash that took out power lines in northern San Diego County (Circuit, July 6, 2007). The grid strain led to a statewide call to conserve energy, but didn’t lead to any blackouts. However, over the course of the summer months, there’s a 20 percent chance of CAISO-controlled areas entering into Stage 1 operating reserve emergencies, during which operating reserves are only between 6 and 7 percent, according to the CAISO’s annual summer energy assessment. There’s a 10 percent chance of a Stage 2 alert (less than 5 percent operating reserves), while the probability of a Stage 3 alert (between 1.5 and 3 percent) is only 2.9 percent, according to the forecast. A Stage 3 calls for rolling blackouts.

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