Duke Energy proposes cure to SDG&E

Duke Energy, through its business unit Duke Energy North America (DENA), has put forth a solution to California’s electricity crisis by proposing to manage San Diego Gas & Electric’s (SDG&E) 3,300 MW electricity load at a fixed price of 6 cents per kWh for the next five years. This proposal is based on market prices for electricity and natural gas as of late November.

DENA’s proposal, which takes into account SDG&E’s seasonal and hourly load requirements and has a three percent annual adjustment for inflation, was included in comments DENA submitted to the Federal Energy Regulatory Commission last week in response to the commission’s proposed remedies for California’s electricity market.

Under DENA’s proposal, SDG&E’s business and residential customers no longer would be exposed to the electricity price spikes they experienced this past summer when their retail electricity prices often exceeded 18 cents per kWh, according to Duke Energy sources.

“The 3,300 MW represent the full electricity load SDG&E needs to serve its retail customer base during the hottest summer day,” said Jeff Stokes, DENA executive vice president for the western region. “In addition to stabilizing customers’ power bills, our proposal would also eliminate SDG&E’s exposure to high wholesale electricity prices and the financial uncertainty that goes along with that exposure.”

California is facing high wholesale electricity prices largely because of supply and demand imbalance-according to DENA’s hypothesis-which has caused the California Independent System Operator (Cal-ISO) to call an unprecedented 20 “Stage Two Electrical Emergencies” thus far in 2000 when available electricity supplies have fallen below five percent. Duke sees the primary causes for the electricity supply shortfall including the state’s economic growth, the lack of new power plants being built, an aging generation fleet that requires more maintenance and electricity imports being less available due to economic growth throughout the West.

Duke believes California’s electricity supply and demand imbalance is expected to worsen or show little improvement until the summers of 2002 and 2003, which is the earliest a substantial amount of new, more efficient and cleaner power plants can be brought on line.

DENA is already working to address California’s shortfall. In October, DENA refiled a 2,500-page application with the California Energy Commission to modernize the 1,000 MW Morro Bay Power Plant. The new 1,200 MW facility represents a $600 million investment. If certification is received, DENA expects to bring the new plant on line by summer 2003 and demolish the existing plant by 2007.

In November, DENA signed a wholesale contract with Southern California Edison to manage price volatility, which followed a similar agreement signed with Pacific Gas & Electric in late October.

Also in November, DENA broke ground on its %525 million modernization of the Moss Landing power plant in Monterey County to upgrade the existing plant and add 1,060 MW of new capacity to the site’s current 1,500 MW. When the modernization is completed, the plant will be California’s largest, according to DENA.

DENA sees its efforts assisting the state’s current electricity problems-both for now and for the future.

“The competitive wholesale electricity markets did not cause this electricity crisis,” said Bill Hall, DENA vice president of asset management for the western region. “But with patience, wisdom and bold behavior by all market participants, we can fix the crisis and not burden the state’s electricity ratepayers or taxpayers.”

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