California Legislature

Hon. Darrell Steinberg, Chair
Assembly Subcommittee on Electrical
Energy Oversight
Room 5136, State Capitol
Sacramento, California 95814

Dear Assembly Member Steinberg:

This responds to the request of the Assembly Subcommittee on Electricity Energy Oversight on Monday, March 5, 2001, regarding California's electricity situation. Specifically, the subcommittee asked that we:

• Evaluate the data on electricity supply and demand provided to the committee by the California Energy Commission (CEC) and the California Independent System Operator (ISO) on the summer 2001 electricity outlook.
• Discuss any actions necessary for the estimates to be achieved.

Our main findings are summarized below. Appendix A provides additional detailed information on different individual supply and demand factors. Appendix B provides information about the authority granted to the Governor by the Emergency Powers Act and Appendix C provides a comprehensive listing of legislation addressing various aspects of the energy crisis. Appendix D discusses key air quality issues relating to both existing and new electricity generation capacity needed for the summer.

The Overall Electricity Outlook

The CEC's Outlook. Figure 1 summarizes the electricity supply-demand data previously provided to you by the CEC. Although four alternative scenarios were provided based on different summertime temperatures, we have focused on the two that seemed to receive the most attention--a "once every other year" (or average) temperature scenario and a hotter "once-in-ten-year" scenario. These alternative scenarios differ solely in terms of the temperature's effect on electricity demand. They all assume the current retail price structure for electricity. Higher retail prices would lower demand, depending on their magnitude. 

The data are on a "peak-load" basis, meaning that they represent the electricity situation during the peak hour of that one day during the summer when electricity demand will be at its highest. Thus, for example, they say nothing about electricity shortages that may occur during nonpeak periods due to such factors as low hydro availability or unplanned outages. In addition, because the CEC data are for the period beginning July 1, they do not address what would occur if the peak-load was experienced in June--before some of the various supply enhancements and demand reductions discussed below are in place.

No Shortage Predicted by the CEC. The CEC's view is that, on a peak-load basis, the state will not face an electricity shortage this summer, assuming various actions are taken. Although the CEC's "baseline" figures show a net peak-load shortage from 1,743 megawatts (MW) to 4,959 MW depending on the scenario, it believes that peak-load surpluses from 6,169 MW to 9,385 MW will result when various supply enhancements and demand-reducing actions are taken into account. In other words, a shortage of electricity is not anticipated by the CEC. It should be emphasized that the CEC's peak-load demand includes a 7 percent reserve, which is an operating cushion to cover unanticipated events (such as an unplanned plant shutdown).

The Legislative Analyst's Office Assessment. We have reviewed the CEC's and ISO's data, met with both parties to discuss this information, and contacted other organizations and agencies with information relating to the electricity supply-demand factors at issue. Due to the limited time available, there were some cases where we were unable to verify figures. In these cases, for your planning purposes, we used our best judgment based on the information available to us. We have included estimates for both July 1 and late summer, to take into account the fact that some of the supply enhancements and demand reductions will materialize after July 1. Figure 2 summarizes our results. We find that:

• When looking at the baseline balance, the state faces a larger shortfall (either 3,918 MW or 7,134 MW) than portrayed by the CEC, due primarily to less available resources within the ISO control area.
• Supply augmentations this summer are likely to be significantly lower than reported, especially early in the summer.
• Energy efficiency and demand-responsiveness savings are likely to be significantly less than assumed.

 Taken together, these three factors make the electricity "surplus" significantly smaller than portrayed by the CEC. In fact, the state would be 550 MW short of what would be needed to both meet demand and maintain a 7 percent reserve if a high-temperature peak were to occur early in the summer. Even in this situation, however, a 6 percent reserve would still exist, which is well above the 1.5 percent level at which rolling blackouts are triggered. In fact, the 6 percent reserve is well above the 3.5 percent level the ISO says is needed for operational purposes. The bottom row in the figure shows that a 983 MW margin would exist with this smaller reserve.

Our estimates are subject to two important qualifications. First, like the CEC and ISO, we have had to make numerous assumptions about difficult-to-predict factors in arriving at our "bottom line" figures--such as levels of power outages, participation in interruptible programs, availability of out-of-state supplies, customer behavioral responses, and federal actions. Second, the supply data identified in Figure 2 represent only resources that are potentially available to California. Since roughly one-quarter of potential supply is produced by private generators, there is no guarantee that all of this amount will be sold for use within California.

In conducting our analysis, we reviewed the important issue raised in your hearing relating to whether the CEC had failed to count in its supply figures 900 MW of power that could be generated during peak-demand by the Department of Water Resources (DWR). This involves changing the timing of water releases from Lake Oroville for environmental management, so as to coincide with peak electricity demand. Based on our discussions with DWR and CEC, this 900 MW was already included in the CEC's baseline electricity supply figures.

Actions by the Governor and Legislature

You have asked us to identify and discuss any actions by the Governor and/or Legislature that would be required for California's projected electricity supply and demand needs to be met.

Actions by the Governor. The Emergency Services Act provides the Governor with broad authority during a state of emergency (descriptions of the relevant code sections are provided in Appendix B). For example, the act provides the Governor with authority to spend available state funds to deal with the emergency, allows the Governor to make and/or amend regulations, and suspend any regulatory statute if it is believed that such statutes would hinder the resolution of the emergency. To date, the Governor has issued 12 electricity-related emergency orders (EOs), including:

• Ordering local air quality management districts to modify existing emissions limits that affect power generators under contract with DWR.
• Directing the Department of Consumer Affairs to establish a public awareness campaign aimed at reducing electricity usage.
• Ordering reduced outdoor lighting by businesses and establishing fines for noncompliance.
• Ordering expedited certification for bringing plants shut down for maintenance back on-line.

The Governor could issue additional EOs to address many of the supply and demand estimates identified by the CEC. For example, this could be done to exempt the Department of General Services from the competitive bidding requirements needed to provide construction retrofits for state facilities. The Governor also could use EOs to redirect funds so as to achieve many of the energy efficiency savings identified, such as appliance rebates and weatherization programs. Such redirections, however, could create deficiencies in those program areas from which the funds were redirected.

Actions by the Legislature. Except in cases that truly require immediate action, the enactment of legislation is generally preferable to EOs for dealing with electricity-related issues. This is because legislation allows the Legislature to determine the structure, financial scope, and time frames for actions.

Within the discussion of individual factors in Appendix A, we identify the specific areas in which legislation would be appropriate. Appendix C provides a detailed listing of most of the electricity-related legislation that has been introduced and groups the measures into broad subject categories to facilitate their review. Given the tight time lines involved for taking action in time to meet summer needs, we believe that the Legislature should focus its efforts in those areas having the greatest potential for enhancing supplies or reducing demand. These include interruptible programs and accelerated siting of peaker plants.

Should you have question regarding the above information, please feel free to contact Brad Williams of my staff at 324-4942.

Sincerely,

Elizabeth G. Hill
Legislative Analyst