We Must Work Together to Solve the Electricity Crisis
Energy Daily
Bill Hall
Vice President of California Operations
Duke Energy North America
The California Energy Commission reports that the primary reason there is shortage of electricity and high prices is that no major power plants have been built in 15 years, while at the same time the demand for power has rapidly increased. In addition, power imports traditionally available from neighboring states are drying up and the cost of producing electricity using natural gas plants has more than doubled since last summer. These higher fuel costs would ultimately be passed on to customers with or without competitive markets.
Last January, I attended an energy summit in San Diego sponsored by the California Public Utilities Commission. At the meeting there were industry representatives, environmentalists, labor leaders, consumer advocates and local and state government officials. The thrust of the meeting was San Diego is not on the brink of an energy crisis—it already has a crisis—and if remedies are not implemented soon, there could be electricity interruptions in the San Diego area and throughout California.
I was impressed by the spirit of cooperation as we collectively recognized multiple solutions would be required, such as new electricity supply and transmission, energy efficiency programs and making available real time meters so consumers can make smarter choices. However, eight months have past since the summit and I’m not aware of a single initiative that has been implemented.
We cannot afford to allow more time to slip away.
Duke Energy was one of the first to purchase power plants in an auction designed to initiate competition in the state’s monopolistic electric utility system—a system that featured the nation’s highest rates. I moved to California to manage our west-coast assets when we purchased three 40-year old Pacific Gas and Electric plants on July 1, 1998. This was followed by our leasing the 40-year old South Bay Power Plant from the Port of San Diego on April 27, 1999. We are obligated to replace the plant by 2009.
Our long and short term solutions to electricity crisis. Just six months after purchasing the PG&E plants, we announced investments of $700 million to modernize our Moss Landing and Morro Bay power plants to increase their generation output while making them cleaner and much more efficient. We have now increased our new investments in those two sites to more than $1.1 billion. When this work is completed by the summer of 2002 and 2003, the plants will serve an additional 1.3 million households. Duke Energy is also considering investing up to $500 million to replace the South Bay Power Plant much earlier than 2009, and we are investing more than $100 million in other existing assets to make them cleaner and more efficient.
To immediately address San Diego price spikes at the retail level, we recently offered 2,000 megawatts of electricity at a fixed price of $50 a megawatt hour to utilities over the next five years. This is much less than the up to $180 a megawatt hour San Diego customers now must pay this summer because San Diego Gas & Electric did not enter any long-term power purchase contracts. Our offer was recently validated, just a week after it was made, when the City of Roseville signed a $114 million agreement with another company at virtually identical terms.
We recently sent a letter to Governor Gray Davis offering an additional 2,000 megawatts of peaking power plants to help solve the electricity supply problem and long-term power contracts to insulate San Diego consumers from price spikes.
These peaking power plants were previously committed to other regions in North America. With a streamlined permitting process overseen by the California Energy Commission to ensure the environment is protected, we can have these units operational by the summer 2001 and 2002—and serve an additional two million households.
In addition, Duke supports the governor’s recent proposal to better manage the impact of electricity price spikes to consumers by spreading out the cost of electricity over a longer period of time.
Like any business making major investments, we need regulatory stability to ensure that the rules we run our business by are not changed without first considering the long-term ramifications for the state’s consumers and electricity market.
I am convinced that the original vision of competitive electricity markets in California will produce cheap, clean and reliable electricity. To realize this vision, we must all collectively work harder in a spirit of cooperation to solve the state’s electricity crisis.
