Probe Debunks Need for Blackouts
Energy: A year in the making, PUC report says five plant owners had the capacity to produce enough power. Industry calls the findings wrong.
By NANCY VOGEL
TIMES STAFF WRITER

September 18 2002

SACRAMENTO -- Southern California could have avoided all hours of blackouts in 2001, and Northern California most of them, if the state's five big, private power plant owners had produced as much electricity as they were capable of generating through the worst of the state's electricity crisis, according to a state report released Tuesday.

The report, by Public Utilities Commission investigators, does not challenge the claims of energy companies that power plants were shut down because of mechanical troubles or air pollution rules. But even assuming that every reported shutdown was legitimate, the report concluded, the five companies withheld between 37% and 46% of their available capacity to generate electricity from November 2000 to May 2001.

"Sufficient generating capacity for California's families and businesses existed," concludes the report, which was a year in the making and has not been reviewed by the full commission. "But blackouts and service interruptions occurred because generators Duke, Dynegy, Mirant, Reliant and AES/Williams did not produce needed power even though their plants could have met California's electricity needs."

Energy company officials refuted the report, saying there are many valid reasons they would not have offered to sell electricity to the California Independent System Operator, which must buy last-minute power supplies to avoid blackouts.

Pat Mullen, spokesman for Duke Energy, operator of three major power plants, called the report blatantly misleading.

For example, he said, the report says that Duke's unused power alone could have prevented blackouts on May 8, 2001. But the Duke plants that the PUC describes as idle were on that day under the control of state grid operators, who could alter their output as needed to keep the transmission system stable, Mullen said.

"It is alleged that somehow we weren't doing all we could," said Mullen. "In fact, all our units were maxed out ... or they were under the control of Cal-ISO."

The generators also dismissed the report as an attempt by California regulators to derail federal efforts to set standard rules for electricity markets across the nation.

"This report emerges out of the ether after a year and a half," said Jan Smutny-Jones, executive director of Independent Energy Producers, an association of power plant owners. "Clearly, the target here is to affect standard market design in Washington, which is an actual attempt to fix the problem."

Released with little notice Tuesday by PUC President Loretta Lynch at a legislative hearing, the report does not resolve an enduring electricity crisis mystery: Did power plant owners deliberately curtail production in order to create scarcity and drive up prices? Or, as the generators claim, were aging power plants plagued by a rash of breakdowns from having run so hard to keep electricity flowing through the summer of 2000?

The power market California created in an attempt at deregulation began to unravel in May 2000. Wholesale prices spiked up. Starting in November, so did the number of power plants shut down for what owners said was maintenance or repairs. In February 2001, for example, twice as many megawatts of capacity were idle in California as in February 1999.

That plummet in power production threw Cal-ISO grid operators into turmoil as they struggled each day to match supply and demand on the transmission system reaching customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

Cal-ISO didn't get full authority from the federal government to force power plant owners to deliver needed power until June 2001. Between November 2000 and then, Cal-ISO triggered blackouts statewide on four days and in Northern California alone on three days. For 38 days, electricity reserves hovered at dangerously low levels.

No Direct Conclusion

The new PUC report draws no direct conclusion about why power plant owners did not offer more electricity for sale to state grid operators. It does, however, state that "generators bear considerable responsibility for blackouts."

The report offers many examples of power plant owners refusing to offer power to Cal-ISO, haggling with Cal-ISO over price and delaying repairs. A confidentiality agreement prevented the PUC from identifying the companies, Lynch said.

On Dec. 6, 2000, for example, the report describes how a "generator H" was asked by Cal-ISO to generate 580 megawatts. The unidentified company refused to do so without a guaranteed price from Cal-ISO. When grid operators insisted the electricity was needed to avoid blackouts, the company called back minutes later to report that the plants were not available due to air quality restrictions.

Sen. Joe Dunn (D-Santa Ana), chairman of the committee to investigate price manipulation of the wholesale energy market, asked PUC lawyers to speculate as to why so many megawatts were "off the table."

Generators Refuted

Gary Cohen, PUC general counsel, responded that the "only reason it's imaginable" that generators would fail to generate "is because they thought that by withholding capacity from the market, they would drive the price up."

He said the report refutes generators' claims that the chief cause of soaring prices and blackouts was a lack of power supplies to meet demand.

"This report shows that those excuses simply were untrue," Cohen said. "There was enough capacity to avoid almost all of the blackouts. Except that the companies that were in control of the plants chose, for whatever reasons they had of their own, not to generate."

Smutny-Jones questioned the accuracy of the Cal-ISO data upon which the report is based and noted that often power plant owners keep some generating units idle as a backup so that they can fulfill their contracts to deliver electricity.

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Times staff writer Tim Reiterman contributed to this report.