The West is at risk of being short energy within the next few years if new generation projects aren't begun soon, energy experts told federal regulators at a conference this week.
The Western electricity market, like most across the nation, is currently overbuilt, but not as much as other regions, said Peter Moritzburke, director of Cambridge Energy Research Associates' Western Energy Office Wednesday.
"The Western markets are overbuilt now but not permanently. They will come back into balance by 2008 in California and the Rocky Mountains. Five years is not long given the lead time needed to build" generation, Moritzburke said.
Moritzburke and other industry experts spoke Wednesday at a National Association of Regulatory and Utility Commissioners meeting in Denver. The meeting was attended by Pat Wood III, Chairman of the Federal Energy Regulatory Commission, as well as FERC Commissioner Nora Mead Brownell.
While a recent slowdown in power plant building puts the West region at increasing risk of future shortfall, it may be good news for power sellers. Merchant generators in the West have been hammered by persistently low power prices in the last year, but prices at trading hubs in the Pacific Northwest could begin to perk up after this year, said Todd Filsinger, head of the wholesale energy markets group at PA Consulting Group.
"Our belief is that the Northwest bottoms out this year, so we should see...the Northwest recovering by 2006. Depending on hydro(power) (conditions), that could come much earlier," Filsinger said.
Prices in the Southwest will remain depressed longer, as that region is the most flush with supply, he said. Arizona in particular has a lot of supply that it can't export to California due to transmission constraints, Filsinger said.
"Arizona and New Mexico don't bottom out until next year, because of transmission constraints into California and plants not yet on line. We'll see a dramatic depression in 2004 and a pretty quick recovery due to load growth," Filsinger said.
The West is generally more at risk of unexpected shortfalls because it depends more heavily on hydropower, whose availability is based on weather conditions that can be mercurial, several experts noted.
Oregon and Washington produce the most hydropower, with California dependent on it for imports.
"We shouldn't be surprised if there is a price blowout in California because of hydro," Filsinger said.
Preventive Measures
To avoid another round of the 2000-2001 Western energy crisis, state and federal regulators need to open up opportunities for investment in transmission and generation, Moritzburke said. The energy crisis brought high wholesale prices, blackouts and utility insolvency.
CERA recommends streamlining the permitting process for power plants; adopting a target amount of electricity operating reserves; and encouraging development of non-conventional energy sources to dilute the region's emphasis on gas-fired plants, Moritzburke said.
Retail customers should also see rates fluctuate with real-time wholesale power prices in order to encourage conservation, he said.
"The five years it will take to bring California and the Rocky Mountain region into (supply-demand) balance will pass quickly," Moritzburke said. "Policies must be reshaped in critical ways."
It's important for industry leaders in the West to move beyond mere discussion of how to meet future energy needs, said FERC's Wood at the close of the meeting.
"One thing I'd urge for the West is to move from the planning and discussion phase to the execution stage... to produce detailed actual projects that can get sited and implemented," Wood said.
