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How Markets Fared this Summer and What to Expect in 2007

How Markets Fared this Summer and What to Expect in 2007. IEP 25 th Annual Meeting October 9, 2006 Steve McClary MRW & Associates, Inc. Oakland, California mrw@mrwassoc.com. Overview. Heat Storm 2006 How Demand Was Met Looking Ahead to 2007 Conclusions. Heat Storm 2006.

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How Markets Fared this Summer and What to Expect in 2007

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  1. How Markets Fared this SummerandWhat to Expect in 2007 IEP 25th Annual Meeting October 9, 2006 Steve McClary MRW & Associates, Inc. Oakland, California mrw@mrwassoc.com

  2. Overview • Heat Storm 2006 • How Demand Was Met • Looking Ahead to 2007 • Conclusions

  3. Heat Storm 2006

  4. July 2006 California Heat Storm CAISO Area Weighted Average Summer Temperatures • Normal summer (1-in-2) is 89° • Extreme summer (1-in-10) is 102° • July 2006 was 106°-110° Definitions: Summer is the period June 15-September 15. Weighted average temperatures are from a set of representative weather stations.

  5. Heat Storm was Long and Intense • Extraordinary minimum and average temperatures in July • Minimum temperatures significantly above normal in some areas • Livermore: 24° above normal; Fresno: 23° above normal • Hottest overnight lows ever recorded at about half of the NOAA recording stations • Fresno: 90°; Stockton: 82°; San Jose: 74° • For June 15-July 27: actual temperatures 3 standard deviations above weighted maximum average temperatures in the CAISO control area • Duration of high temperatures contributed to heat storm • Valley heat wave persisted for 36 days • Sacramento recorded 11 consecutive days of 100+ temperatures • Humidity was a factor • SDG&E estimates humidity combined with high temperatures added 4%-6% additional load during July 22-24

  6. Historical Heat Waves: 1949-2006 Top Eight Heat Waves in PG&E Service Area Source: PG&E Presentation, “July 2006 Heat Wave (Heat Storm) PG&E Area”

  7. Temperatures & Peak Loads: July 17-27 Mission Viejo soccer tournament July 24 peak: 50,270 MW Temperatures in IOUs’ Areas Peak Load in CAISO Area Source: California Energy Commission, July 2006 Heat Storm Workshop, August 29, 2006; http://www.energy.ca.gov/2006_summer_outlook/documents/index.html

  8. Peak: Temperature + Load Growth • CAISO 2006 peak almost 5,000 MW higher than 2005 • Total CAISO load year to date is 5% higher than 2005 • Adjusted to account for MID and TID departure • Load continues to grow • Higher energy use per customer • Significant growth in air conditioning use • Heat caused loss of A/C load diversity

  9. Customer and Infrastructure Impacts • 138 deaths attributed to heat storm conditions • Distribution transformers failed • Extreme conditions meant loss of A/C cycling diversity; high load factors on distribution system • Ambient temperatures were critical contributing factor to transformer failures • Age of transformers only a minor factor in failure

  10. Market Price Impacts

  11. Demand Forecast Performance 1,500 MW Demand forecasts for CAISO control area

  12. How Demand Was Met

  13. Customers Cut Their Own Demand State government led by example • 25% reduction in state buildings • Strong public response to conservation requests • Flex Your Power: “Flex Alerts” issued only when high temperatures were expected • Utilities’ customer outreach efforts • PG&E estimated 500 MW reduction in its territory • Interruptible and demand response customers provided 850 MW

  14. CAISO July 24 Demand: Forecast vs. Actual

  15. Coordination by Market Participants • Water districts • Reduced peak pumping load • Returned load gradually at PG&E request • Generators • Maintenance schedules were optimized • Coordination on imports • Exceeded normal transmission limits from Northwest; “sharpened the pencils” • BPA sent water down river on Sunday to maximize Monday generation • Modified generator maintenance schedules • CAISO summer preparedness training for transmission system operators • Firefighters protected grid from wildfires

  16. High Generator Availability • Less than 1,000 MW of uncommitted capacity during peak hours in late July • Scheduled and forced outages less than 2,500 MW on July 24 • Below 3,000 MW for most of July • Resource adequacy requirements were instrumental • 95% of overall peak scheduled day-ahead; 99% scheduled hour-ahead • SDG&E reported mixed performance for peakers in its territory

  17. Additional Factors • Imports provided 9,600 MW • Hydro resources were abundant • Blown transformers reduced load by about 200 MW • Transmission line availability was high • Transmission congestion was not an issue

  18. Looking Ahead to 2007

  19. Electricity Demand Continues to Grow… • CEC’s 2007 forecast: 1-2% growth • CAISO expects weather-adjusted increase of about 1,000 MW per year • Under expected conditions (1-in-2), CEC forecasts an operating reserve margin of 21% • Reserve margin drops to 5.5% for 1-in-10 • Reserve margin under Heat Storm 2007?

  20. …But New Infrastructure Several Years Out • High probability generation additions • 2007: 190 MW1 • 2008: 752 MW • CAISO has interconnection requests for 29,150 MW covering next five years; expects less than 50% to reach commercial operation • New major transmission lines • SCE’s Devers-Palo Verde 2 planned for late 2009 • SDG&E’s Sunrise Powerlink planned for 2010 1 Source: WECC Proposed Generation Database, posted on the CEC website. This number does not include the peaking capacity the IOUs have proposed in response to CPUC Pres. Peevey’s ruling.

  21. Fast-Track Measures for 2007 • IOUs seek to add new peaking capacity • SCE: utility-built 250 MW • PG&E: utility-built 200 MW + San Francisco peakers + power purchases • SDG&E: 250 MW in-basin through power purchases • Expanded demand response programs • IOUs proposing extra 679 MW for 2007 • A/C cycling, demand bidding, AutoDR • Requested expedited regulatory approval

  22. Regulatory and Planning Issues • Resource adequacy requirements • Should 15% planning margin be based on 1-in-2 demand? 1-in-10? • Consideration of IOU-specific circumstances • Hydroelectric capacity • Large single contingency relative to system (e.g., SDG&E) • Potential for multi-year adequacy requirements • Need 3-10 year forecast of requirements for development • Forecasting • CEC needs data from IOUs sooner to provide forecasts earlier • Include humidity factors in forecasts

  23. Conclusions

  24. Lucky or Well-Prepared? • Well-prepared • Coordination among key market players • High generator availability: additional resources would not have prevented outages; transformers were the weak link • Strong customer response • Lucky • Excellent hydro conditions • No wildfires threatening grid • Transmission congestion not an issue

  25. Implications for Future Planning • Summer 2006 was (or should be) wake-up call for state planners and SCE • Climate change could be a wildcard in future energy forecasts • The CEC identified resource needs in the 2005 IEPR (not additive) • Total Procurement Need for 2009 • SCE: 8,724 MW • PG&E: 5,001 MW • SDG&E: 305 MW • Additional Renewables by 2010 • SCE: 1,183 MW • PG&E: 790 MW • SDG&E: 428 MW • Aging Plant Replacement by 2012 • SCE: 8,088 MW • PG&E: 4,900 MW • SDG&E: 1,619 MW

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