## Experts say that many of the new policies by the PUC and the state legislature seem to be putting the Golden State on track for more blackouts.

Although California's...

## Gas-fired Generation: Can Renewable Energy Reduce Fuel Risk?

a particular draw, the model may select coal or wind instead of gas in its build decisions. The results of all the simulations are collected and presented as both an expected value and standard deviation of any indicator of interest (such as the present value of future revenue requirements or annual net income). Simulations are run until statistical errors fall to an acceptable level; this usually takes about 300 runs. The wind and gas scenarios are run simultaneously, using the same uncertain inputs, resulting in a very precise determination of the differences between them. It should be noted that the model does not consider the value of modular generating resources or option value (em the ability of a company to put off an investment until more information (on fuel prices, environmental regulations and other potential risks) is available. The capital costs and operating characteristics of new and existing fossil plants are based on TU Electric data. The wind capital cost is assumed to decrease from $908/kW in 1996 to $845/kW in 2003. Fuel Price Trends and Variations. Fossil fuel purchase is one of TU's largest expenses, constituting about $1.2 billion out of total operating revenues of $5.6 billion in 1994. It is also one of the most variable and unpredictable. TU's recent filings for the 1995 Integrated Resource Plan show an expected real growth rate in gas prices of 1.9 percent per year from 1994 to 2014, with a high rate of 2.8 percent and low rate of 0.5 percent. Little change is expected in coal or lignite. In the SRP model, it is assumed fuel price variations follow a random-walk process, with an adjustment for temporary price "shocks" from weather and supply and other factors. In a random walk, each annual price change establishes a new starting point to calculate the next year's price. Price shocks are assumed to disappear after one year. The random changes are drawn from a normal (bell-shaped) distribution. The mean of the distribution is TU's median price forecasts: 1.9 percent for gas and zero for coal. Two cases of standard deviation are considered. In the high-risk case, we assume future prices will reflect the volatility of the past 25 years. This implies, for gas, an overall standard deviation of 12 percent in the random walk and 10 percent in the price shocks, resulting in a standard deviation of 16 percent. The low risk case leads to a standard deviation of 4 percent in the random walk and of 6 percent in the price shocks. The volatility of coal prices is assumed about two-thirds that of gas prices in both cases. Load Growth. Unexpected changes in loads can affect the utility's revenues, profits and customer prices. TU's 1995 load forecast predicts an average rate of growth in peak loads of 2.5 percent (compared with the historic 3.4 percent) from 1994 to 2004, with a 40 percent chance the rate may reach 3.9 percent and a 40 percent chance that it may fall to 0.9 percent. Loads are modeled the same as fuel prices, with a combination of