Plant Shutdowns Tied to Power Costs

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Generators insist maintenance was needed. State contends firms created false shortage.

Los Angeles Times

Since the moment electricity prices began to soar in May 2000, California power plants have been shutting down–purportedly for repairs and maintenance–at rates two, three and four times higher than before, according to figures made public by the state Energy Commission.

The figures, posted on the commission’s Web site this week, provided new evidence Friday to those who believe the generators have been manipulating the state’s electricity market by creating an artificial shortage.

The commission tabulations showed that the amount of electricity kept off the market because of shutdowns and breakdowns began growing last May and has continued to expand, reaching a peak last month, when the amount offline was 350% greater than in April 2000. This April, the average amount offline was 14,990 megawatts, about one-third of the state’s total needs.

At the same time, the wholesale price of electricity increased from about $30 a megawatt-hour last April to more than $1,500 a megawatt-hour later in the year. This week, it reached a new peak of $2,000 a megawatt-hour. One megawatt-hour of electricity is enough to power about 750 households, although it varies widely by season.

“It was about May of last year that they saw they had some market power by withholding [power],” said Rob Schlichting, a spokesman for the Energy Commission. “I’m sorry, I find it hard to believe this is all because they’ve had breakdowns, or they had maintenance they had to be doing.”

A spokesman for Gov. Gray Davis said the figures confirmed the governor’s complaints about the generators, which bought the plants from California utilities when the state’s electricity marketplace was deregulated in 1998.

“It’s definitely an issue of concern,” said Roger Salazar, who added that the numbers highlight the need for the state to more closely monitor plant shutdowns. Richard Sklar, the governor’s electricity supply advisor, said he reached an agreement with the generators Wednesday allowing the state to inspect plants when they shut down.

Spokesmen for the generators said the plants have been shutting down more frequently because they’ve been running harder and longer, putting a strain on equipment and also requiring new pollution-control devices, which take time to install.

“We’ve been running them flat out,” said Tom Williams, a spokesman for Duke Power, which owns four power plants in California. He said he took “extreme exception” to the idea that Duke was shutting down plants to manipulate the market. In fact, he said, Duke‘s California plants have better reliability records now than they did when they were owned by the state’s big private utilities.

The Energy Commission figures show that, for the first four months of 2000, when wholesale electricity prices were essentially flat, generators shut down their plants for repairs or maintenance somewhat less often than in 1999.

In May 2000, a jump in natural gas prices sent electricity prices sharply higher. Plant shutdowns–as measured by the average amount of electricity that could have been produced each day but wasn’t–went up that month by 32% from the year before.

That was the last month that the percentage increase was in double digits. In June, plants were 120% more likely to be out of service than in 1999. The month after that, 130%.

The increases continued to grow, averaging well over 200% during the last four months of 2000, when prices leaped still higher, California utilities lost their ability to pay for wholesale electricity and their customers added a new term to their lexicon: the rolling blackout.

The first four months of this year saw even more outages, culminating in April’s 350% increase.

Generators explained the April figure by noting that California grid regulators had asked the operators of numerous power plants to postpone necessary, routine maintenance during the winter months, when the state faced constant shortages. Several plants, such as an AES Corp. plant in Huntington Beach, finally shut down in April–months late–so they could be ready for the summer.

Also, portions of both the San Onofre and Diablo Canyon nuclear power plants were offline in April, depriving the state of more than 2,000 megawatts. One unit at Diablo Canyon went down for refueling–an essential part of maintenance–and a unit at San Onofre has been shut down since February to repair damage from a fire.

That doesn’t explain the earlier increases in shutdowns, but Gary Ackerman, executive director of the Western Power Trading Forum, which represents electricity traders and generators, suggested that many of the outages in the last nine months or so could also be explained by deferred maintenance.

“The older units were being required to run many, many more hours last summer than they had in any previous year,” he said. “So what we had is a lot of wear and tear put on machinery . . . you can only defer maintenance to a point.”

Anyway, he said, “Why would they want to take their units offline when the prices are high? It doesn’t make economic sense.”

Critics say the outages are intended to raise the price of electricity by creating an artificial shortage. High prices have forced the state to step in as the leading purchaser of wholesale electricity, prompting Davis to propose the largest state bond issue ever. They also have driven the state’s largest utility, Pacific Gas & Electric, into federal Bankruptcy Court.

“In a sense, this is what we should expect in a deregulated world,” said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “With deregulation, we threw away our ability to ensure reliability–and this is the evidence of it.”

One leading expert on the state’s energy markets said there may be validity to both the criticism and the generators’ defense.

The generators’ claim that they were forced to run their plants unusually hard “is somewhat true,” said Severin Borenstein, director of UC Energy Institute in Berkeley. But he added, “There’s also no doubt that some of them have an incentive to take [plants] offline to jack up prices. The problem is that it’s hard to prove which is which.”

Going Offline

Electricity generating plants have been out of commission for planned maintenance or for unexpected repairs in the last year at substantially higher rates than in earlier periods. The downtime coincides with a sharp rise in electricity prices since May 2000.

Consumer Watchdog
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