By Kate Thomas
OGJ Online Staff
HOUSTON, May 1 -- Reliant Energy Inc. hasn't signed a long-term agreement to sell power to the California Department of Water Resources because the agency says California no longer needs base load energy, a Reliant senior vice-president testified in Washington, DC, Tuesday.
John Stout said the agency first refused to give Reliant a standard letter of credit, and now says it is only interested in buying short-term peaking power. The California DWR began purchasing power after the state's two financially troubled utilities -- Southern California Edison Co. and Pacific Gas & Electric Co. -- ran up huge bills for wholesale power.
Without a contract with the DWR, Reliant could be become subject to a Federal Energy Regulatory Commission price cap on sales in the spot market. Reliant owns about 3,500 Mw in California.
Testifying before the House Energy and Commerce subcommittee on Energy and Air Quality, Stout proposed including in the emergency electricity bill under consideration a "negawatts" program to help reduce demand this summer by allowing retail customers willing to forego electricity to bid the power into a west-wide market.
He estimated the system could free up to 5,000 Mw or about enough to cover the forecasted 4,000 Mw shortage California is expected to endure this summer. Stout said the reduction in demand will have the same net effect as an increase in generation, noting a blackout is merely a chaotic, and perhaps catastrophic demand reduction.
Utilities can typically purchase negawatts only from within their own service territory, he said, but no mechanism exists for getting someone else's retail customers to interrupt. Although California has a number of initiatives under way to produce negawatts of demand curtailment within California, Stout said there is insufficient capacity in California to cover the expected shortfall.
He said the Reliant proposal is to conduct weekly and daily bid auctions, inviting retail loads to interrupt and make available the curtailed amount to satisfy emergency needs somewhere else in the western interconnection.
Load customers would bid a specific price per kilowatt hour for interrupting and the amount of load in megawatts that they are prepared to interrupt. The party administering the program would use these individual customer bids to develop a bid stack of available emergency resources to be made available in the western interconnection as needed.
If a specific system needed help, such as the California Independent System Operator, they would notify the program administrator. The program administrator would then verify the least cost set of bids that could be exported, taking into consideration available transmission.
Once those bids have been identified, the customers and their host utility control areas would be notified. The customer would interrupt, and the host utility would turn the curtailed megawatts into an export schedule destined for delivery to the deficit utility. At this point, Stout said the transaction would look exactly like any other emergency transfer which currently takes place within the West.
Time biggest hurdle
The control area receiving assistance would pay for the negawatts dispatched to assist them. The customer who made the voluntary load curtailment would continue to compensate its retail supplier for its precurtailment level of retail purchases.
Ultimately, the curtailing customer would receive as compensation the bid price times the quantity of actual negawatt curtailment, minus the retail charges he pays to his retail provider, and minus any imbalance payment due to the transmission provider.
Stout told committee members the biggest hurdle is getting the program implemented within the next 60 days. But, he said, at least two vendors have indicated interest.
"What we now need is for an organization or a government entity to initiate the program," he said. "Although the issue is unsettled as to whether or not this negawatt transaction is a retail or a wholesale transaction, federal legislation could quickly resolve such ambiguity."
Stout said a number of large industrial and commercial customer trade organizations have expressed interest in the proposal. In addition, he said, the proposal has been discussed with key policymakers in Arizona, Colorado, Nevada, Oregon, Washington, Utah, Wyoming, and California.
The reaction from all of these parties has generally been from mildly positive to strong support, he said. Stout estimated the program could be implemented for under $500,000 with participating curtailing customers paying a fee of less than $1,000 each for initial enrollment and a per transaction fee of under $100 each.
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