Did You Know

California Power Market Continues Steady, Stable Operations, According to ISO Annual Report

The California Independent System Operator (CAISO) recently issued its Annual Report on Market Issues and Performance, and it confirms that the California wholesale electric market continues to improve in several key areas – market and price stability, increased forward contracting and additional generation. The report noted that there is a steady and stable market for the third full year in a row. The report also identified the challenges facing the state, including strong demand growth, real-time local congestion and the ongoing need for new transmission.

CAISO President and CEO Yakout Mansour said, “All things being equal, we are back to the type of prices we saw before the energy crisis in 2000/2001 when you take into account natural gas costs.” A significant finding in the report was that wholesale prices have declined 30 percent from 1999 levels after accounting for fuel price increases. The market report went on to point out that the demand for energy in California is growing roughly 4 percent, about double the typical rate.

Electricity in California is bought and sold through contracts directly between two parties in advance of the ISO daily markets. While CAISO schedules the delivery of the energy, only 3 percent to 4 percent of the needed energy goes through the ISO markets on a given day. CAISO Director of Market Analysis Anjali Sheffrin said this was a positive sign. “Over reliance on the spot market to meet system demand can lead to significant market problems,” she said.

The report also noted economic and reliability benefits of the 6,600 megawatts (MW) of generation added in the Southwest during 2003, which offset decreased imports from the Northwest hydro system. Still, generation in the state is lagging, and only 748 MW was added to the CAISO’s control area in 2004, compared with 4,830 MW in 2003. The ISO does project that 2,231 MW of new generation will be added to its control area in 2005, while only 450 MW will be retired.

The Path 15 Upgrade, which began commercial operation on Dec. 22, 2004, has allowed greater energy flows between Southern and Northern California. “We have observed nearly a 50 percent increase in flows over the path compared to last year, allowing more lower cost energy from new efficient resources to reach Northern California loads,” said Sheffrin.

In addition to rapid demand growth, the state continues to face the twin challenges of needed generation and transmission. Intra-zonal congestion became a “chronic” problem in 2004, according to the report, as intra-zonal congestion costs jumped 182 percent. The 2004 “State-of-The-Market Report” is available on the ISO home page at www.caiso.com.