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Outside Audit: U.S. May Have a Few Summer Power Problems by Rebecca Smith, Staff Reporter Wall Street Journal - June 10, 2004

Supplies Look Sufficient Except for California, Michigan and New York

Traffic is murder on the streets of L.A., but traffic on California's power lines may be even worse. Flash to the East Coast, where political infighting and legal wrangling are in good supply -- even if power isn't. And there's one other trouble spot for electricity in the flyover between the coasts.

You're reading the script for a feature that might be called "The Summer Power Problems," and there's an unfortunate probability of sequels in the future.

The supply of electricity in most states this summer should be sufficient to meet a projected 2.5% increase in overall consumer demand. But things are shakier in a few states, notably California, Michigan and New York, where investments in new power plants and transmission lines have in some cases lagged behind increases in demand, pushing the electric systems near their limits.

Power demand in California, for example, is up about 4% from the summer of 2003, and the state also faces a slight decrease in available resources because of power-plant retirements and snail-like progress in solving transmission problems, including notorious power-line bottlenecks that are getting worse: Periods of congestion, in which available energy can't get where it's needed because of insufficient space on power lines, doubled between 2002 and 2003 and are expected to grow a shocking 50% this year.

"It's one thing to have tight supplies and pay high prices," says Patrick Wood III, chairman of the Federal Energy Regulatory Commission. "It's something else when you don't have the supplies or capacity."

To damp demand, Gov. Arnold Schwarzenegger is dusting off California's "Flex Your Power" energy-conservation campaign, minted during the energy crisis of 2000-2001 but dormant the past two summers. The program encourages consumers to cut their use of electricity and, new this year, will urge them to trim consumption of water and gasoline, as well.

In New York, grid operators are worried by a growing dependence on natural gas to fuel power plants, given the potential for gas-supply disruptions. Although construction of new plants in recent years has boosted the cushion of surplus power in the Empire State, the operators worry that New York will be unable to meet its electricity needs in the years ahead unless new power plants get built that haven't yet been proposed or unless retirements of older plants are delayed.

For this summer, the North American Electric Reliability Council, responsible for safe electric-system operations, warned that hot temperatures and power-plant or power-line breakdowns could make southwestern Connecticut, New York City and Long Island "susceptible to supply problems." In New York state, for example, only one new transmission line has been built in the past 10 years, a cable under Long Island Sound connecting Connecticut and New York. But that line has been the subject of continuous legal wrangling since it went into service on an emergency basis in August. In fact, the line currently is de-energized because of opposition from Connecticut officials who fear that wholesale power prices in their own state will go up if local suppliers have the ability to sell relatively cheap electricity to New York.

Despite these known problems, officials in power-strapped states have difficulty putting solutions into motion. California is a textbook case.

In the Golden State, more than $1.1 billion has been spent on transmission upgrades in the past two years by utilities and others, but not all upgrades have come when and where they were needed. For example, the state has labored to make improvements to a power corridor called Path 15, a notorious bottleneck obstructing power flows between Northern California and Southern California. Path 15 played a starring role in several market-manipulation schemes during the power crisis because its weaknesses could be exploited.

But needed improvements got bogged down in a rancorous debate concerning who would benefit from upgrades and who would pay for them. Historically, California regulators have allowed only improvements that made the electric system more reliable to be charged to consumers. They have resisted improvements needed to lower market costs.

Grid operators, meanwhile, have fought to change that, arguing for improvements to Path 15 as much for financial as reliability reasons. They said the upgrades were necessary to allow cheaper electricity in one part of the state to reach another part. Ultimately, the grid operator prevailed, and the improvements to Path 15 will be completed by the end of the year. But getting there was a burdensome four-year process, and the state faces similar problems with other lines.

California officials are attempting to smooth out the process for getting transmission upgrades in the future. Last week, the California Independent System Operator submitted a proposal to the California Public Utilities Commission suggesting a potentially precedent-setting methodology that would allow transmission improvements to be made that appear capable of lowering power prices and boosting reliability by broadening the effective market area.

"Our experience with Path 15 showed us we needed a standardized way to determine the financial benefits of upgrades," says Anjali Sheffrin, director of market analysis for the California ISO. California officials estimate that transmission congestion costs consumers hundreds of millions of dollars a year in added costs.

Meanwhile, the New York ISO is looking at the California proposal since the New York market also has suffered from especially high costs from transmission bottlenecks.

September 24, 2003 -- U.S. Department of Energy

Construction Work Starts on Path 15 Transmission Line

WASHINGTON, DC-An Arizona construction company received the green light to start work to fix a notorious transmission bottleneck in California after the deal to provide private funding for the transmission line work closed on Sept. 12.

"I'm pleased that construction work on this important project has started," Secretary of Energy Spencer Abraham said. "The recent Northeast blackouts emphasize the need for investment to improve the nation's electric transmission infrastructure."

On Sept. 15, Trans-Elect's New Transmission Development Company, which is responsible for funding the transmission line, provided the Department of Energy's Western Area Power Administration, the Federal agency managing the project, with $76 million to start work on the 84-mile transmission line. Maslonka & Associates, Mesa, Ariz., is the transmission line contractor.

"With construction funding in place, Western now can take the lead as project manager," said Western Administrator Mike Hacskaylo. "I am confident that with the expertise and dedication of Western employees, the project will come in on time and budget, and serve as a model for future transmission expansion."

Pacific Gas and Electric Company, the third Path 15 upgrade participant, will manage all substation work to accommodate the new line at its existing Los Banos and Gates substations.

The project will come on-line in late 2004.

Path 15 is a system of three 500-kV lines between Northern and Southern California, except for the segment between Los Banos and Coalinga in the Central Valley where only two 500-kV lines were built. The project will add a third line and upgrade the substations at either end of this segment. It will add 1,500 megawatts of transmission capacity between the northern and southern California.

The California Independent System Operator has estimated that the cost will be recovered in four years. The ISO estimates Californians will save $100 million in energy costs during a normal year and more than $300 million during a dry year.

Western will own the new line. Transmission rights will be shared among the three participants according to their contributions. The California ISO will operate the new line.

Western is a Federal agency within the Department of Energy. It markets electricity from Federal water projects in a 15-state region of the West and delivers this power on a network of more than 17,000 miles of high-voltage transmission lines. PG&E is one of three California-based investor-owned utilities. PG&E delivers electricity and natural gas to 14 million customers in northern and central California. Trans-Elect is the nation's largest independent transmission company.