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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "SCIENTECH IssueAlert" <IssueAlert@scientech.com< X-To: X-cc: X-bcc: X-Folder: \Mark_Haedicke_Jun2001\Notes Folders\All documents X-Origin: Haedicke-M X-FileName: mhaedic.nsf Today's IssueAlert Sponsors:=20 [IMAGE] The CIS Conferencec provides utility management personnel unequaled insight= =20 and current information on Customer Relationship Management (CRM),=20 E-Commerce, Technologies and Marketing. Fifty-four sessions conducted by=20 utility industry representatives will focus on issues facing the industry.= =20 Over 100 companies will exhibit the latest technologies and services.=20 Former President George Bush is our Honored Keynote Speaker=20 www.cisconference.org If you need content for your energy or business site, call us. We provide energy industry content to electronic and traditional publicatio= ns=20 as well as corporate intranets. Our staff consists of leading energy expert= s=20 with diverse backgrounds in utility generation, transmission and=20 distribution, retail markets, new technologies, renewable energy, regulator= y=20 affairs and international issues. We produce analytical content for standar= d=20 and proprietary vehicles which are distributed throughout all sectors of th= e=20 energy industry.=20 Let us translate our extensive knowledge about the energy industry into=20 readable, understandable and entertaining information for you! Contact Will= =20 McNamaraat 505-244-7604. =20 For advertising information, email Nancy Spring, or call (505)244-7613.=20 [IMAGE] IssueAlert for March 9, 2001=20 California May Be Headed for Another Volatile Summer; How Much Power Is Needed to Save the State? by Will McNamara=20 Director, Electric Industry Analysis Unless Gov. Gray Davis arranges significantly more long-term electricity=20 contracts, or convinces people to turn off a lot more lights, California's= =20 unpredictable spot market for power could wreak havoc again this summer. Ev= en=20 with the long-term deals announced by Davis on March 5, up to 40 percent of= =20 the state's daily needs may have to be bought on the highly volatile spot= =20 market, where power is purchased a day ahead of when it is needed. That cou= ld=20 prove hugely expensive for the state, because if this past year's spot mark= et=20 prices are an indicator, then California might see spot market prices at fi= ve=20 to six times more costly than what they would be under the long-term=20 contracts.=20 Analysis: Despite the somewhat reassuring announcements that the state of= =20 California has lined up various new long-term contracts for the supply of= =20 power, it remains questionable if the power secured in the contracts will b= e=20 enough to prevent another long, hard summer for the state and its residents= .=20 In fact, some predictions suggest that summer 2001 could be just as bad or= =20 worse as summer 2000, leading to another series of rolling blackouts and=20 spikes in spot market prices.=20 To date, California has spent upwards of $50 million a day (a total of $2= =20 billion since January) to buy electricity on the spot market. The long-term= =20 contracts in which the state has engaged are intended to lock in cheaper=20 prices and cut down the amount of electricity the state has to buy in the= =20 volatile short-term market.=20 On March 5, Gov. Davis announced that the state of California=01*through th= e=20 Department of Water Resources (DWR), the newly appointed power purchasing= =20 agency=01*has agreed to 40 power purchase contracts with more than 20 gener= ators=20 and marketers, which will supply an average of 8,886 MW per year over the= =20 next 10 years. The contracts, varying in length from four months to 10 year= s=20 and worth $43.4 billion in total, reportedly will provide the state with a= =20 diversified long-term power portfolio, said Davis in an announcement. =20 According to a report in Megawatt Daily, the average price of the deals is= =20 $69/MWh over the entire 10-year period. For the first five years, the avera= ge=20 price will be $79/MWh, dropping to $61/MWh for the period between 2006 and= =20 2011. Gov. Davis has offered that these prices are between 75 and 80 percen= t=20 lower than recent spot market prices, although they are higher than the=20 original goal of $55/MWh that Davis had established when he first began to= =20 negotiate long-term contracts. In a noticeable omission, the governor has= =20 refused to identify exactly how much power from long-term contracts will be= =20 available to the state this summer. =20 There has been a string of announcements regarding the long-term contracts,= =20 so we know some of the 20 companies that are entering into agreements with= =20 the state. For instance, Calpine Corp. locked the DWR into a 10-year contra= ct=20 for the sale of approximately 5,000 MW of electricity. California will be= =20 paying a fixed price for the power it buys from Calpine, but most reports= =20 have placed the value of the deal in the range of $4.6 billion. Dynegy and= =20 NRG Energy said that they have agreed to sell up to 2,300 MW=01*enough to p= ower=20 about 2.3 million homes=01*to the DWR under contracts lasting through 2004.= =20 According to the companies, their California generating affiliates=01*El Se= gundo=20 Power LLC, Long Beach Generation LLC and Cabrillo I=01*will provide up to 1= ,000=20 MW of power to the state from today through the rest of 2001, increasing=20 deliveries of 2,300 MW from Jan. 1, 2002. Mirant Corp. (formerly Southern= =20 Energy) announced an agreement to shift 1,000 MW in power contracts from th= e=20 California Power Exchange to the state's DWR.=20 These are just a few examples, among other companies such as Avista, Duke,= =20 Enron, PacifiCorp, and Williams that have signed on to serve the state unde= r=20 long-term contracts. Absent from the list is Reliant Energy, which=20 reportedly is in negotiations with the DWR, but reluctant to commit to more= =20 than a 30-day contract to sell power to the state. Reliant is owed over $30= 0=20 million for power delivered to Southern California Edison (SCE) and Pacific= =20 Gas & Electric (PG&E) in November and December 2000. The two major utilitie= s=20 owe more than $12 billion to power-generating companies and can't buy more,= =20 having no credit or cash to make the purchases, which is what prompted to t= he=20 state to appoint the DWR into the power purchasing role =20 Gov. Davis has said, "With these deals in place, California's energy future= =20 is looking a whole lot brighter." But is it really? That is the question of= =20 the hour. Representatives for the governor have indicated that the long-ter= m=20 contracts will reduce the state's need to purchase power on the spot market= =20 over the next 10 years by about 75 percent. Yet, of more immediate concern = to=20 analysts is what will transpire during the fast-approaching summer heat, wh= en=20 demand increases. This represents a quite precarious scenario, the start of= =20 which is only about two months away. Speaking at a press conference in Los= =20 Angeles on March 5, Davis said state DWR negotiators have so far been able = to=20 meet between 65 and 70 percent of the state's power needs for the coming=20 summer, based on last summer's consumption. The governor again called on=20 residents to cut usage by 10 percent over last year. Despite the tempered= =20 optimism associated with these announced long-term contracts, the general= =20 consensus is that, however much power Gov. Davis has lined up for this=20 summer, it won't be enough. In fact, when pressed for details about how muc= h=20 power would be available this summer, Davis conceded that the state will=20 still have to buy 30 to 45 percent of its power on the expensive short-term= =20 market.=20 As noted, the long-term contracts that have been established thus far vary = in=20 length from four months to 10 years. However, when doing the math for the= =20 anticipated summer season, the calculation of what will be needed versus wh= at=20 will be available paints a pretty alarming picture. During the month of=20 August=01*typically the hottest month in California=01*peak daily demand fo= r power=20 in the California ISO territory is expected to hit about 47,700 MW. The=20 state's three IOUs=01*PG&E, SCE and San Diego Gas & Electric=01*still gener= ate=20 about 8,000 MW from their remaining power plants and have long-term contrac= ts=20 from wind, solar and other energy sources that gains them an additional=20 11,700 MW of power. Gov. Davis has established that about 7,000 MW from the= =20 long-term contracts will be available this summer. In addition, back in=20 February, Davis announced a plan to expedite new power plants in the state,= =20 which he promised would bring 5,000 MW online by July (an ambitious goal th= at=20 may or may not materialize). Altogether, assuming that all of these=20 projections are reliable, the total comes to about 26,000 MW that we know= =20 should be available in California this summer, leaving the state about 16,0= 00=20 MW short for its power supply needs. =20 Gov. Davis may continue to secure long-term contracts with other power=20 suppliers. Or, then again, he may not be able to do so. Most of the promine= nt=20 power suppliers operating in the United States have already signed deals wi= th=20 the DWR and are included in the 7,000 MW that is already expected for the= =20 summer. Thus, there is a strong chance that the bulk of the 16,000 MW neede= d=20 by California will have to be bought on the spot market, where prices are= =20 projected to remain high at least through the beginning of next year.=20 Reportedly, just within the last week, last minute prices on California's= =20 spot market averaged $411/MWh, compared to $69/MWh, which is the average of= =20 the long-term contracts. =20 Some officials, including Gov. Davis, have said that, now more than ever,= =20 conservation in California is critical. Representatives of the governor hav= e=20 suggested that if Californians reduce their electricity usage by 10 percent= ,=20 conservation efforts across the state could reduce peak demand by nearly=20 5,000 MW. =20 Or, perhaps a traditional rain dance would be in order. California is due f= or=20 a cooler summer season after the two previous summers that were unseasonabl= y=20 warm. A rainy season would bring cooler temperatures to the state and thus= =20 drive down the anticipated demand for the summer, which is based on last=20 year's load. If the state is fortunate enough to receive a rainy season or= =20 otherwise cooler-than-expected summer, then the state could squeak by with= =20 enough power supply resources to accommodate anticipated demand. If summer= =20 2001 is another unseasonably warm one for the state, the plan that is=20 presently in place sounds like a blueprint for another volatile and expensi= ve=20 summer for California=20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. =20 Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
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