State Inflated Power Needs, Lawmaker Says

SACRAMENTO —  A state senator investigating California’s electricity market accused the state’s grid-operating agency Tuesday of manipulating the market itself, at taxpayer expense.

Sen. Joe Dunn (D-Garden Grove), who has been investigating abuses of California’s power market in the last two years, accused the California Independent System Operator of inflating demand for electricity on dozens of occasions last fall. The final result, he said, was that state taxpayers bought unnecessary power that often had to be sold at a loss.

Dunn pointed to an incident on Nov. 14 in which Cal-ISO workers told state power buyers to falsely inflate the demand for electricity in order to get Reliant Energy and Duke Energy to turn on power plants at Ormond Beach and Morro Bay.

The state arranged to buy electricity from those plants at above-market prices, Dunn said, and later sold it at a loss because it wasn’t needed.

Dunn acknowledged that Cal-ISO’s motive wasn’t profit--the nonprofit agency maintains the flow of power on the grid serving three-fourths of the state--but rather to keep electricity flowing to utility customers despite the refusal of some power plant owners to offer their electricity for sale.

Instead of resorting to manipulation to counteract the defiant generators, Dunn said, Cal-ISO should have taken its concerns to the Federal Energy Regulatory Commission, the nation’s top regulator of electricity markets.

Last June, FERC had ordered power plant owners in California to stand ready to sell power to Cal-ISO. The order frustrated generators, especially the owners of older power plants that take many hours to warm up.

If Cal-ISO could not have avoided blackouts without resorting to manipulation, Dunn said, “the ultimate responsibility lay with FERC.”

“The ultimate arbiter here is FERC,” Dunn said. “When FERC won’t do its job, going to the California ratepayer and taxpayer and asking them to pay more dollars, in my view, is not an acceptable alternative.”

Cal-ISO officials defended their actions, saying they wanted to guarantee adequate power supplies in the several days after the Nov. 14 weekend because a major transmission line was shut down for maintenance.

The Ormond Beach and Morro Bay plants sit on either side of that line, said Cal-ISO spokesman Gregg Fishman.

Michael Kahn, chairman of the Cal-ISO governing board, said, “We did it to ensure reliability because we weren’t sure we’d have enough electricity on a certain line.”

At a news conference, Dunn played a nine-minute tape of a Nov. 14 conversation between Cal-ISO and the state’s power-buying operation, which is part of the Department of Water Resources. State officials had asked that they have attorneys present for the conversation and that it be recorded.

In the recording, Cal-ISO grid operations director Jim McIntosh tells Water Resources employees that he wants them to “bring the units on and hold minimum load.”

A Water Resources power buyer tells Cal-ISO employees that doing what they ask will force the state to sell off electricity because they’ve already arranged for enough power for several days.

Dunn said he did not know the cost of complying with Cal-ISO’s request.

But Duke spokesman Pat Mullen said the power from its inefficient, 47-year-old Morro Bay plant was purchased at the time for the cost of production, $23.50 per megawatt-hour. Market prices at the time were closer to $18 per megawatt-hour, he said.

Mullen denied that Duke ever violated a federal order to supply electricity to Cal-ISO.

“We’ve been cooperative in every instance when requested by the ISO to bring a unit on line,” he said, “even when it was questionable whether we’d be paid.”