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Industry News

Duke Has Power Supply Ideas for Governor; Speed Plant Permitting, Allow Bilateral Contracts

LCG, Aug. 1, 2000--As Southern California electricity customers faced a Stage 2 Power Watch yesterday and wondered when the lights would go out, a subsidiary of Duke Energy Corp. told Gov. Gray Davis how to solve the states power supply problems.

Over the years, California utilities developed enough power plants to provide about 75 percent of the states electricity needs. Another 14 percent comes from surplus generation in states in the Southwest and the remaining 11 percent is imported from the Pacific Northwest.

That arrangement worked fine until everyone bought a computer and plugged it in, and it still worked when the weather cooperated. But, for the past two or three days a layer of heat has blanketed the entire West and the sources from which California imports power are keeping their juice at home.

Power consumption for today was forecast by the California Independent System Operator to hit 46,245 megawatts, and the ISO knows where it can lay its hands on about 46,400 megawatts. The state needs more power plants inside its borders, hooked up to the grid managed by Cal-ISO.

In southernmost California, there is another problem. Customers of San Diego Gas & Electric Co. have seen their electricity bills double since May. That happened because under the states electric restructuring plan utilities sold off their power plants and were forced to purchase power through the California Power Exchange to serve their customers.

SDG&E did not arrange for enough power in the block forward Cal-PX markets to cover a June heat wave and is probably running short today. That means the utility has to go into the volatile spot market, paying top dollar to serve its native load. Top dollar was $750 per megawatt-hour until Cal-ISO lowered the price cap to $500 a couple of weeks ago.

Duke Energy North America says it can solve both problems, and told the governor how to go about it, with solving the need to import power first.

" California's high electricity prices during peak-demand periods result from insufficient supply tomeet the demand," said Jim Donnell, president and chief executive of the Duke affiliate. "In the past tenyears, no significant new power generation facilities have been built in California. During the sameperiod, peak demand has risen more than 10,000 megawatts. This combination has caused the state's reserve margin to fall to less than 2 percent, which necessarily results in higher prices and abnormal volatility."

Under current procedures administered by the California Energy Commission, it can take four years or more to deliver new power generation in the state. To add substantial incremental generating capacity to California, Duke proposed Gov. Davis use his existing authority under the California Emergency Services Act to streamline the permitting process to facilitate the rapid construction of new generation by next year.

As to the San Diego problem, which could affect the customers of Southern California Edison Co. and Pacific Gas & Electric Co. when those firms get their stranded costs paid off, Duke has another idea.

The company also asked the governor to use his current authority to allow California utilities to enter into bilateral contracts with energy providers, bypassing CalPX, so they could better manage their exposure to high energy prices.

Duke offered to provide up to 2,000 megawatts of electricity to the states three utilities at $50 per megawatt-hour for a five-year period beginning Sept. 1, 2000. This would mitigate the exposure to price spikes, for a reasonable time period during which additional generation resources can be built.

How this message will be received in Sacramento remains to be seen.

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