State power authority's outlook bright -

California will have sufficient megawatts through 2006, officials say; trader group skeptical

By Rick Jurgens Contra Costa Times 2002.01.19

California can keep the lights on through 2006 without adding any major new power plants besides those already
nearing completion. Instead, the state can rely mainly on conservation and renewable energy projects to generate
8,000 megawatts to meet the expected growth in demand.

Those are among the key conclusions of a draft report [608 kb pdf] released Friday by the California Power Authority. By
pursuing a "clean-growth strategy," the state could pull the plug on up to 14 new natural-gas fired power plants that
would otherwise be needed, it says.

While painting a generally bright picture, the report calls for some quick fixes in a corridor from San Francisco to
San Jose, where transmission line bottlenecks could cause outages.

David Freeman, the authority's chairman, compared the new report to the business plan of a start-up company. A
public hearing on the document is set for Jan. 28 in Oakland to discuss the future role of the 5-month-old authority,
which has a green light to raise $5 billion by selling bonds.

By partnering with private investors, the authority estimates that it could come up with more than $17 billion to back
its clean-growth strategy, the report says. Clean growth refers to improved efficiency, demand management and
development of small or non-fossil-fueled generators.

The fledgling authority also sees the need for expanded powers, including new laws that would allow it to invest in
transmission line projects and exercise eminent domain to override the objections of owners and take over private
power plants and unfinished power projects. Those owners would be compensated.

None of that sits well with power producers. Addressing the potential exercise of eminent domain by the authority,
Gary Ackerman, executive director of the Western Power Trading Forum, declared, "We'll see you in court."

Ackerman said he saw no need for taxpayers to chip in on transmission projects. Necessary additions "will be met
with investments by the private sector if the right rules are in place," he said.

Ackerman was also skeptical of other elements of the new report. "They're selling a bill of goods," he said. No more
than 2,000 megawatts could be captured from conservation and renewable energy projects, and any additional
growth in demand will have to be met with investment in traditional fuel-burning power plants, he said.

The authority was created at the height of last year's energy crisis, when statewide electricity demand peaked at
48,500 megawatts. Freeman and other state officials rushed to lower power costs and avert blackouts, urging
conservation, signing long-term contracts and encouraging power plant construction.

About 3,000 megawatts of new capacity -- enough to power about 2.3 million homes -- was built in California last
year, and another 2,000 to 3,000 megawatts are nearly completed and expected to come on line this year,
according to the report. But Freeman warned that in the face of current power surpluses and low prices private
developers have backed away from plans to add still more capacity. "Power plant projects are dropping like flies," he
said.

That sudden reversal in development plans reflects changes in the state's electricity industry, where a 1996
restructuring law shifted responsibility for investment in new capacity from regulated utilities to price- and
market-sensitive merchant generators. "Unregulated generating companies can build or fail to build plants as they
choose based solely on whether it fits their financial balance sheet," the report says.

That has helped create what the report describes as "a dramatic risk profile for the future of electricity in California."
A supply surplus, or reserve margin, in a range equaling from 19 percent to 22 percent of total demand is necessary
to ensure competition and to rein in prices, but generators understand that "keeping us on short rations (means)
higher prices for them, while a surplus means lower prices and lower profits for them," the report says.

That's where the authority comes in, Freeman said: "Our job is to see that the state attains a surplus and keeps it."

To respond to looming problems in the West Bay, the authority proposes a concentrated energy efficiency program
with manufacturers in Silicon Valley, investment in solar power in San Francisco and construction by summer of a
50-megawatt plant to function at times of peak demand on the San Francisco Peninsula. By the summer of 2003, it
also aims to bring on line another peaker plant rated at 57 megawatts in San Francisco.

The new report also itemizes what the commission wants in its toolbox to make it sure it can produce a long-term
surplus: wind, geothermal and biomass projects, energy efficiency improvements in private homes and government
buildings and payments to customers that shut down at times of peak demand.

Rick Jurgens covers the energy industry. Reach him at 925-943-8088 or at rjurgens@cctimes.com.