Board coordination is the key.
Many utility CEOs are happy to pass off risk-management policy to the CFO and the head of the trading desk. After all, with deregulation...
Money, Power and Trade: What You Never Knew About the Western Energy Crisis
If you think you've heard it all about the power crisis, consider this fact:
In early 1999, the administrator of the Bonneville Power Administration (BPA) alerted the Northwest Power Planning Council (NPPC) about a possible energy shortage in the Pacific Northwest. And in March 2000, just two months on the eve of the crisis, the NPPC confirmed the analysis, noting that there was a 24 percent probability of not being able to serve all of the load sometime before 2003. But the NPPC also commented that the BPA had painted an "overly bleak picture," since imports and exports, in conjunction with hydropower reserves, would prove flexible enough to deal with the situation. If even noticed, the warnings were dismissed by both the region and California.
Now skip forward another year. As recently as Feb. 16, after the crisis was known to all, the Washington Energy Facility Site Evaluation Council turned down an application by the National Energy System to construct a 660-megawatt gas-fired turbine at the border with British Columbia.
"On balance," said the state council, "the significant environmental and social costs of the facility, if located at the site proposed, outweigh the resulting energy benefits it would provide only to most competitive bidders of the Western states power grid."
Simply put, it seems the siting council feared that the plant owner might export the output out of the state, to power-hungry customers in California who were willing to pay more.
These two anecdotes speak volumes on the power crisis that evolved in California and out West. The one shows the importance of free trade, the other its total collapse.
And in one final ironic twist, it turns out that the collapse of trade likely began at the very place that for centuries has served as one of the great trading hubs of North America, starting long before the Europeans came to the New World.
Celilo station on the Columbia River is the northern terminus of the DC (direct current) line that interconnects the electricity grids of Southern California and the Pacific Northwest. The Celilo station is aptly located at what was once Celilo Falls, where the Columbia River plunged over abrupt cliffs in a swirl of white water and spray, blocking navigation upstream. The falls are now covered by a subdued reservoir behind the Dalles Dam.
Celilo Falls was once one of the great trading hubs of the North American continent, where as many as 10,000 natives would gather to fish and trade. At the end of the Columbia Gorge, the falls marks the breach between the lush Pacific Coast with its blackish loam, wild rhododendrons, honeysuckle, roses, fern, moss, and evergreen firs, and the bleak interior with its sun-bleached soil, barren lava, sagebrush oak, and pine. At Celilo Falls, the principal medium of exchange was dried salmon, preserved to carry families through long cold winters. Here the boat people from the Lower Columbia, Puget Sound, and the Inside Passage would trade salmon for the Navajo's bright turquoise and silver. They would trade for Aztec corn and the buffalo hides