News Analysis
East Coast prices bear an eerie resemblance to California of last spring, but pay no mind, say experts.
Is it plausible to look at wholesale electricity prices during the early summer months of last year in California, and try to make an educated guess as to what might happen this summer in the other regions? Some say yes, but Ed Krapels, the director of natural gas and electricity for Energy Security Analysis Inc., in Wakefield, Mass., says no.
"California is such a special case, that I don't think a comparison would tell much. ... It took talent to do what they did out there," he says. However, if you are in the business of forward thinking, compare the numbers with words straight from the horses' mouths: the independent system operators (ISO) and reliability councils for the regions shown in the following graph.
Last year, California watched as wholesale electric prices skyrocketed during the early summer months, and continued on an upward trend for much of the year. This year, forecasters see much of the same in the West. Krapels says that even with the FERC caps in place, prices could go as high as $400.
"The caps take much of the uncertainty out of the equation," he says, "even though prices may still be outrageous. There are so many inefficient plants out there, and the heat rate is so high, that we'll see a lot of spikes. Because of this, forecasting prices of $200 to $400 in California isn't that difficult."
Experts look to this past winter's increased forced outages, and predict much of the same could happen this summer. In December, the average forced outage rate was over 5,000 MW, with outages exceeding 6,000 MW on six individual days. However, the California ISO claims in their "2001 Summer Assessment" that "better planned coordination could minimize outages during the summer peaking periods, as well as allow some flexibility to soften otherwise unmitigated spikes in forced outages as well." That said, the powers-that-be in California do realize that there is trouble in the very near future. In the same report, the ISO continues, "California is facing an electricity shortage of unprecedented proportions. ... This forecast deficiency suggest that California will experience rolling blackouts for periods this summer."
So, what about the rest of the country? "The Eastern pool-with the possible exception of New York-looks to be in pretty good shape. You might see an occasional flare-up, but it should quickly settle back down. It's nothing like what we'll see out West," Krapels says.
In the PJM-controlled section of the country, the Mid-Atlantic Area Council (MAAC) "expects to have sufficient generating capacity to serve the 2001 forecast summer peak demand." In a recent press release, the MAAC makes this statement assuming that weather conditions for the area are normal this summer. While noting that the summer of 2000 was fairly cool, they were able to handle last year's summer peak of 49,288 MW on Aug. 9 with no emergency action needed. "The PJM Interconnection LLC, the independent system operator in the MAAC region, is well-prepared for operating emergencies should they occur. Regular drills have been conducted in preparation for an extremely hot summer," the MAAC says.
In New England, the ISO is confident they are well prepared for a hot summer. In fact, they feel they have set the stage for a problem-free summer by facing a record-breaking heat wave in early May. On May 8, the ISO New England announced that the region's electric power system withstood record-setting temperatures during the first week of the month, and that the performance of the system bodes well for the upcoming summer.
"The conditions we saw last week are exactly what we base our summer forecasts on," said Stephen G. Whitely, ISO New England's vice president of system operations in a press release. "The fact that we were able to meet the demand, even though we were not yet at maximum capacity, shows that we should be able to avoid extreme measures this summer."
Dr. David Patton, the independent market advisor for the New York ISO, recently released a report saying "New York's markets are indeed competitive, but New Yorkers will suffer from higher electricity prices unless significant levels of new generation are added to the system in the near future." Patton also predicts that for this summer, prices will be at the very least 7 percent higher than they were last year, with the increase reaching 46 percent by 2005. Given this summer's impending crunch, the NYISO is working on some solutions. "Given the very tight supply situation we are faced with ..., the NYISO will continue to devote every possible resource available to insure that the system meets every challenge ... until new generation is successfully brought on line," says NYISO President and CEO William J. Museler.
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