Peak Demand Factors

Demand Estimates Appear Reasonable

The California Energy Commission (CEC) estimates that peak demand (including a seven percent reserve) will range from 57,909 megawatts (MW) for an average one-in-two year summer peak, to 61,125 MW for a hot, one-in-ten year summer peak. (In addition, a one-in-forty year estimate also was provided as a worst-case scenario.) The estimates assume moderate growth in underlying demand compared to last year of about 2.5 percent on a temperature-adjusted basis. This is slightly less than recent increases, and reflects moderate growth in the state=s economy. The CEC and California Independent System Operator (ISO) are in agreement on peak energy demand, although both note that there can be considerable demand variability related to the weather. For planning purposes, we believe that the basic demand forecast is reasonable.

Reducing Reserves Is a Possibility

As noted above, the CEC=s demand forecast assumes a seven percent reserve. In actuality, however, the state has been operating with considerably less than a seven percent reserve in recent months, and could likely do so this during the summer as well. The ISO indicates that operationally a seven percent reserve is well above what is needed to protect against likely risks associated with an unexpected outage. The ISO currently has a proposal before the Western Systems Coordinating Council (WSCC) to change the state=s reserve requirement from being a single percentage of total statewide supplies, to being the statewide sum of the Asingle largest contingency@ in each individual region. The statewide reserve resulting from such a change would be equivalent to about 3.5 percent. Of course, reducing the state=s electricity reserves would increase the risk of shortages under certain conditions.

Potential Action. Should a policy of lower reserves be adopted, peak-load demand would be reduced by roughly 1,500 MW. If the Legislature wished to encourage such a change, it could pass a resolution urging the WSCC to adopt the new standard as quickly as possible.

Existing Supply Factors

Before discussing the individual factors associated with electricity supply, it is important to note that many of them face potential air quality-related constraints. An example is the availability of air pollution offset credits. As discussed in Appendix D, the Governor=s executive order (EO) addressees most of the constraints, although we identify areas where legislation should be adopted.

Existing ISO Control Area Resources (45,025 MW) C Overstated

The CEC estimates that 45,025 MW of generating capacity will be available in the ISO control area. This estimate may be overstated by around 1,000 MW due to a dispute about the total net energy supplied to the grid by qualifying facilities QFs. The CEC estimates that 7,700 MW has been supplied to the ISO grid by QFs; however, the ISO contends that no more than around 6,500 MW have been realized historically. At this time, is prudent to assume a total supply of 43,800 MW.

Net Imports to ISO Control Area (4,841 MW) C Estimate Has Risks

The CEC estimates that 4,841 MW will be available to California as net imports. It also indicates that these peak-load estimates are partly based on firm contracts that do not depend on substantial amounts of surplus electricity from the Pacific Northwest or Canada. The CEC does not believe that the current dry conditions in the Northwest will have a dramatic adverse effect on this peak summer supply estimate, although they could have major implications for power supply and demand conditions later in the year, when water supplies run low in the Northwest. The ISO=s estimates for imports are consistent with CEC=s forecast. Thus, for current planning purposes, we believe it is appropriate to use these estimates. However, we note that they could prove to be optimistic, given the continuing deterioration in hydro conditions in the Northwest.

We would also note that even if the overall estimate is achieved, the lack of imports from the Northwest could still result in regional problems in Northern California. Because of constraints related to Path 15 (the transmission line delivering electricity from Southern to Northern California), there may be circumstances in which it is not possible to compensate for shortfalls in Northern California with imports from the Southwest.

In-State Generation Resources Outside ISO Control Area (9,350 MW) C No Issues

In-state generation resources outside of the ISO control area total 9,350 MW and encompass the Los Angeles Department of Water and Power (LADWP) control area, the Imperial Irrigation District, and the northernmost part of California. This generation is currently adequate to service the respective geographic areas. This estimate is reasonable.

Potential Action. The LADWP estimate includes about 1,000 MW of excess capacity in the LADWP which, while available to use in California, could also end up being sold elsewhere.. To the extent the Legislature wants to ensure that this electricity is available to Californians if and when needed, appropriate legislation could be enacted (this also could apply to power generated by other California municipal utilities).

Expected Outages Estimate (3,050 MW) C Could Be Low

The level of electricity outages that will occur is probably the single largest unknown in the supply estimate for the summer. The CEC=s peak-load outage assumption is moderately higher than last summer=s actual average of about 2,500 MW. However, it is low relative to more recent experience where the level of both planned and unplanned outages have soared this winter C more than doubling from the prior winter. These recent increases have been partly attributed to the prolonged high levels of operations in the summer of 2000 which added to equipment wear-and-tear and restricted maintenance, although financial and economic factors may have also played a role.

Both the CEC and the ISO believe that generators will have powerful price incentives to stay in operation this summer, and that outages will return to levels that are near last year=s rates. However, it is also the case that persistently high operational rates being placed on California=s aged system of generators could continue to boost unplanned outages into the summer months. Although any estimate of outages is subject to a great deal of uncertainty, we believe that C given recent experiences and the high demands likely this summer C it is appropriate for planning purposes to assume a somewhat higher outage rate than the CEC C perhaps in the range of 4,000 MW.

New Generation Factors

Approved CEC Projects (1,261 MW) C Most Available by Start of Summer

The CEC is assuming that 1,262 MW of already approved generation projects will be on-line by July 1, 2001. At this time, it appears that the two larger projects C Sutter and Los Medanos C will be on-line by the target date along with Sacramento Municipal Utility District's (SMUD=s) 44 MW Proctor and Gamble simple-cycle plant. It is uncertain that one project C the Sunrise project will be on-line by the July 1 target date. This project, however, is expected to be on-line later this summer. Thus, we think that 1,050 MW is a more reasonable assessment of the generation to be on-line by July 1, 2001, with the remainder expected later in the summer.

The SMUD McClellan CT Upgrade (22 MW) C No Issue

The CEC has estimated that the upgrade of the SMUD McClellan project should add around 22 MW of generating capacity to the grid. We understand this project is already on-line. Thus, this estimate is reasonable.

The ISO Summer Reliability Generation (1,133 MW) C Estimate Overstated

The CEC estimates that 1,133 MW will be available from these small gas turbines by July 1, 2001. However, this number appears to be overly optimistic given the target date. The ISO indicates that it is more likely that 600 MW will be on-line by July 1, with additional generation coming on-line over the course of the summer. For planning purposes, we believe it is appropriate to assume 600 MW will be available on July 1 and another 200 MW by mid-summer.

New Renewable Energy Projects (80 MW) C No Issue

The CEC has estimated that new renewable energy projects will contribute 80 MW of additional generation to the grid=s capacity. This estimate is less than the total capacity that these projects can potentially generate. Thus, this estimate is reasonable.

Restart of Existing Biomass Plants (137 MW) C No Issue

Many existing biomass plants have been idle over the past few years since their operation was often not economically feasible. However, the CEC has estimated that restarting around ten of these existing biomass plants may contribute around 137 MW to the grid. This figure appears to be a low-range estimate and is reasonable..

Rerates Of Existing Thermal Plants and Other Non-CEC Projects (580 MW) C Dependent on Federal Energy Regulatory Commission (FERC) Waivers

The CEC has estimated that around 580 MW of new generation could be added to the grid from the rerating of existing thermal plants and other power projects with less than 50 MW of capacity. These designated rerates, which are tied to the upgrading of existing facilities, have already received upgrade permits by the state. However, about 450 MW of these upgrades are dependent on extensions of existing waivers from FERC of restrictions related to fuel use, efficiency, and total sellable generation. All of the existing waivers for these facilities expire next month. For planning purposes, we believe it is reasonable to assume approval of the waiver extensions and include the full 580 MW..

Huntington Beach Return to Service (450 MW) C Qualified Inclusion

The CEC has estimated that the Huntington Beach power plant will return to service and contribute 450 MW of energy to the grid by July 1, 2001. At this point, we understand that the plant has the necessary water discharge permits, and is likely to receive both an air-quality permit and an operational permit from the CEC within the next several weeks. However, the plant faces considerable opposition from various members of the local community, and we understand that lawsuits are likely to be filed if the plant is approved. The opposition is primarily related to the accelerated permitting process involved and concerns about how the plant=s warm discharges affects the ocean=s water quality. While for planning purposes we have included the 450 MW in our supply figure, the qualifications associated with it should be noted.

New Peaking Power Plants (1,000 MW) C Overstated

The CEC originally estimated that 1,000 MW would be available during the summer from new peaking power plants around the state. Based on the number of sites that have been identified to date, however, it appears that 250 MW is a more realistic estimate at this time (with most of this available after July 1).

United Golden Gate (45 MW) C Pending Lease Issue

The CEC anticipates that this project will add 45 MW to the generating capacity of the grid. However, construction on this simple-cycle plant has not commenced due to complications associated with a lease. Because the lease issue currently remains unresolved, we believe for planning purposes that this source should not be counted on until later in the summer..

The LADWP=s New Projects (267 MW) C No Issue

The CEC estimates that 267 MW of capacity will be added by LADWP by the end of the summer. This estimate is reasonable.

Energy Efficiency Factors

The PUC Summer Peak Initiative (67 MW) C No Issue

The California Public Utilities Commission (PUC) allocated $70 million in unspent funds from utility-administered energy efficiency programs to fund electricity savings project proposals for summer 2001. Identified projects include appliance rebates, replacing halogen with fluorescent lights, and installing light emitting diode traffic signals. We were unable to evaluate the 67 MW involved in the time provided, but have included it for planning purposes.

The CEC AB 970 (150 MW) C No Issue

Chapter 329, Statutes of 2000 (AB 970, Ducheny), provided $50 million to the CEC to implement specified energy efficiency grant programs, among other things. The estimated savings C 150 MW C were identified in applications for grant funds, and according to CEC, a majority of these savings will be in place by June 1, 2001. On this basis, the Legislature should consider these savings probable for summer 2001.

State Government (100 MW) C Savings Overstated

This proposal is based on information from the Department of General Services (DGS). The department has preliminarily identified approximately 400 sites that could produce about 185 MW of savings. There is no information, however, on the type of conservation measures to be used, when the work could be accomplished, the basis for estimated electrical energy savings, or the costs to realize them. The Legislature would need to provide an appropriation to cover such costs. Senate Bill 5x includes $100 million for this purpose. Also, we understand that DGS believes the work cannot be accomplished by July 1, 2001 if the work is competitively bid. Exemption from competitive bidding to meet the summer 2001 time frame would require either a Governor=s EO or legislative action. The CEC included 100 MW in its forecast. Given the lack of information and timing to implement many of these projects, we believe the Legislature should count on no more than 30 percent (30 MW) of the estimated savings for summer 2001.

Potential Action. Legislative appropriation, and legislative or EO to provide exemption from competitive bidding.

Air Conditioner Incentives/Appliance Rebates (84 MW) C Timing Issue

If authorized, this would expand existing PUC programs that are carried out by the utilities. Senate Bill 5x includes $86 million to subsidize the purchase of more efficient residential heating, ventilating, and air conditioning (HVAC) equipment and appliances. Given the time frame involved, we do not expect the entire 84 MW of estimated savings until late in the summer.

Potential Action. Adoption of legislation to provide program funding. .

Low-Income Weatherization Program (8 MW) C No Issue

This would expand existing weatherization programs. Senate Bill 5x includes $20 million to augment existing funding for insulating and upgrading the homes of low-income persons to improve energy efficiency. We have been unable to verify this estimate in the time available. For planning purposes, however, we have included the 8 MW.

Potential Action. Adoption of legislation to augment existing program.

Cool Communities, Oil/Gas Pumping, Commercial Lighting Efficiency (187 MW) C Savings Uncertain and Requires Legislation

The cool communities and commercial lighting initiatives would expand existing programs, while the oil and natural gas proposal is new. SB 5x includes $177 million to implement programs and measures to (1) use low-energy usage building materials, (2) lower air conditioning usage, (3) retrofit pumps and motors for greater energy efficiency in oil and natural gas production, and (4) subsidize the cost of more efficient lighting. We have been unable to verify the validity of the estimated 187 MW savings in the time provided. For planning purposes, however, we have included the estimated savings.

Potential Action. Adoption of legislation to fund the identified programs.

Demand Responsiveness/Voluntary Reduction Factors

The CEC AB 970 (70 MW) C No Issue

Assembly Bill 970 provided $50 million to the CEC to implement, among other things, a grant program for large companies to install equipment that makes cooling and lighting systems automatically respond to signals from the ISO to lower energy use when the wholesale price of electricity is high. These estimated savings of 70 MW were identified in applications for grant funds, and according to CEC, a majority of these savings will be in place by June 1, 2001. On this basis the estimated 70 MW savings should be achieved by summer 2001.

State of California (150 MW) C No Issue

In a test coordinated by DGS and ISO, several state entities reduced their energy use at a designated time, while ISO observed the load reduction to see how much electricity conservation this state effort generated. The ISO reports that it observed a 150 MW reduction in electricity use from this experiment. Departments who participated in this effort last year should be prepared to continue their efforts, and should achieve the same level of energy savings by reducing demand during summer peaks. These savings appear reasonable

The DWR Peak-Load Reductions(300 MW) C No Issue

On a few occasions in December 2000, Department of Water Resources (DWR) stopped pumping water through the State Water Project for a few hours to conserve electricity. The estimated 300 MW savings from similar activity this summer is reasonable.

Local Government/Feds (112 MW) C Estimate Achievable

Local and federal government agencies reportedly have a plan for electricity demand reduction in place. We cannot confirm the source of the federal government=s participation in this item nor can federal participation ultimately be guaranteed. Consequently, we have been unable to verify the validity of the estimated 112 MW savings. However, assuming participation by local agencies, we think this estimate is achievable.

Demand Responsive Building Systems / Innovative Peak-Load Reduction (220 MW) C Timing Issue

According to CEC, this proposal would expand the demand responsiveness program implemented pursuant to Chapter 329 for additional systems to be installed after June 1, 2001. Senate Bill 5x includes $160 million to (1) improve the demand responsiveness of HVAC systems, lighting, and real-time metering of electricity usage in buildings; and (2) subsidize Ainnovative peak-demand reduction measures.@ We have been unable to verify the estimate in the time provided. However, significant savings are likely but time is required for full implementation. We would recommend for planning purposes that a two-thirds of the estimate be assumed for the start of the summer with the full amount by the end of the summer.

Potential Action. Adoption of legislation authorize and fund the identified demand-response and peak-load reduction programs.

Public Outreach Activity Savings C Significantly Overstated

The CEC has assumed 2,000 MW in savings which it attributes to an electricity advertising campaign. Ten million dollars has been allocated for first-year costs from the utility-administered energy efficiency programs. In addition, SB 5x would appropriate another $10 million for this purpose. In our view, the savings associated with the advertising campaign per se are substantially exaggerated. However, we also believe that the increased public awareness associated with the electricity crisis generally will result in significant savings, depending on how serious conditions become this summer. For planning purposes, we think a savings of 1,300 MW from the baseline demand is reasonable. This is consistent with the maximum savings that the ISO was able to identify during the January Stage 3 alerts and rolling blackouts.

Potential Action. Adoption of legislation to support an electricity awareness campaign, dependent on evidence that such a program is effective and cost-beneficial.

New Demand-Side Response Initiatives C Overstated

The CEC has estimated that the state will achieve 2,700 MW of savings (1,225 MW for both Pacific Gas and Electric and Southern California Edison, and 250 MW for San Diego Gas and Electric) related to both (1) the extension of existing utility interruptible programs (where companies agree to a predetermined amount of cutbacks each year in return for a reduced rate) and (2) the development of new demand-reduction programs (these being a day-ahead and day-of program, each of which offers fixed rates per KW/hour to companies that voluntarily curtail their power loads). The specific programs involved are included in AB 31 X1 (Wright). The PUC is also considering various issues relating to demand-side response initiative, including how their costs would be distributed.

Both Southern California Edison and Pacific Gas and Electric indicated to us that it is unlikely they will be able to achieve the levels targeted by CEC. The companies indicated that they will likely lose many customers that have participated in their existing interruptible programs, due to concerns about the possibility of numerous power interruptions this summer. While the utilities also believe that they can attract customers into the new demand reduction programs, it will likely take some time to build participation in the new programs. At this time, we believe a reasonable estimate for the total amount of savings is about 1,800 MW for the three utilities combined, or about two-thirds of the CEC estimate.

Potential Action. Given the past importance of interruptible programs and the time that would be required to set-up new programs, the Legislature should consider quick action in this area.

Text of Letter
Appendix B
Appendix C
Appendix D
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