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CALIFORNIA

This update provides a comprehensive overview of the California energy market, including the factors influencing supply and demand, the impact of hydro generation and natural gas supply, pipeline capacity, intrastate slack capacity, energy conservation outlook, and future capacity addition projections.

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CALIFORNIA

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  1. CALIFORNIA UPDATE Division of Market Development

  2. Background • Consumption & economic growth cause energy demand to outpace supply from 1995-2000, electric and gas prices skyrocket. • Spring 2001, CA enacts policies to reduce energy demand and increase supply. • Summer 2001, FERC imposes wholesale price mitigation throughout the WSCC. • Summer 2001, extraordinary decline in energy demand, prices subside.

  3. California Energy Commission Supply/Demand Projection 2002-2004 Source: CEC 2001-2012 Electricity Outlook Report (Dec 2001), California Summer Electricity Outlook 2002-2004, (Nov 2001) & CEC Staff.

  4. California Generation 2001 - 2006 Megawatts SOURCE: RDI PowerMap, NewGen, December 2001

  5. California New Generation Status 2001 - 2006 1,374 3,391 8,908 3,230 11,285 6,484 Projects listed are canceled/tabled SOURCE: RDI PowerMap, NewGen, December 2001

  6. Hydro-Generation • Hydro accounts for 20% - 40% of the generation in California. • Hydro represents 35% of the installed capacity in the WSCC. • For the next several years, reserve margins will be heavily influenced by hydro conditions in conjunction with transmission transfer capability into California.

  7. Mountain Snowpack 2001 v.s. 2002

  8. Low Hydro Impact on Natural Gas Source:Hydro, RDI Powerdat, System Version 4.026-12/26/2001. Gas, CPUC

  9. Transmission Update • May 2001 National Energy Policy Plan recommends relieving Path 15 constraints. • October 2001, 8 parties sign memorandum of understanding to participate in Path 15 project • February 2002, PG&E receives approval from U.S. Bankruptcy Court to begin Path 15 project • Summer 2004 construction and upgrades will be completed giving Path 15 the ability to serve 5.4 million as compared to 3.9 million households today

  10. Natural Gas Supply & Transmission Western Canadian Sedimentary Basin • California Gas Supply: • In-State Production: 15% • Imports: 85% • Southwest - 47% • Canada - 28% • Rocky Mtn. - 10% 1 5 5 Stanfield 5 Rocky Mountain Basin 9 5 Malin Main 13 Rocky Mountain Basin 7 3 San Juan Basin 8 14 San Juan Basin 4 2 Topock Topock Anadarko 10 12 Anadarko Basin 2 2 Blythe Permian Basin Permian Basin (Not to scale) Source: California Energy Commission

  11. Pipeline Capacity Serving California(MMcfd) From the SouthwestExistingAdditions El Paso Pipeline -- Northern System @ Topock 2,080 -- Southern System @ Ehrenberg 1,240 Transwestern Pipeline @ Needles 1,090 150 From the Rocky Mountains Kern River Gas Pipeline 700 145 Questar Southern Trails 120 From Canada PG&E Gas Transmission-Northwest 1,930 211 7,040 626 TOTAL DELIVERY CAPACITY 7,666 (including recent additions) TAKE-AWAY CAPACITY 7,415 (SoCalGas, PG&E, Kern, Mohave) CA Difference = 251 SOURCE: California Energy Commission, Natural Gas Infrastructure Issues; October 2001. Additions: FERC filings & FERC Infrastructure Conference – May 2001

  12. California Intrastate Slack Capacity Through 2006 Under Various Weather Scenarios • The CPUC estimates a decrease in gas demand from Gas-fired Electric Generators due to: • Substantial number of new efficient gas-fired power plants will displace power produced from older inefficient plants. • A return to normal hydroelectric generation. • New power plants under construction in neighboring states will sell power into California.

  13. Immediate Outlook • Spot prices for natural gas and electricity are at five year lows. • Demand for electricity and natural gas is down as a result of the slowing economy, mild weather, and conservation hold over. • Hydro conditions appear strong and should lead to healthy production in 2002.

  14. Energy Conservation Outlook • Californians consumed 8.9% less electricity in 2001 v. 2000. It is unlikely that this level of conservation can be sustained into the future. • Traditionally, the CAISO had 2,800 MW available in interruptible load programs. Participation has declined to 1,600 MW. • California’s recent budget cuts discontinue significant portions of California’s energy conservation program. SOURCE: (1) CAISO 2001 / 02 Winter Assessment. (2) California Governor Gray Davis, Proposed Reduction in Spending in 2001-02, released November 14, 2001.

  15. Capacity Addition Outlook • October 2001, the California Energy Commission forecast 27,400 MWs of additional capacity by 2004. • Currently, lower demand and market prices have many companies reevaluating planned projects. • As of February 2002, the California Energy Commission reports only 9,950 MWs of additional capacity by 2004.

  16. California Outlook - Beyond 2003Market Sensitivities • Since many supplies will be secured by long-term contracts, exposure to short term price volatility will be limited. • Supply & demand situation could deteriorate if: • Economic growth outpaces projections. • Low hydro conditions return. • Plant cancellations continue. • Energy conservation declines. • Energy demand throughout the WSCC increases which would limit import availability to California. • Planned transmission expansions are delayed.

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