California Megawatt Crazy Electric Crunch

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Less than a month after it was announced that there could be an electrical shortage in California in 2004, two industry giants were forced to shutdown or mothball older power generation units because no buyer of power could be found to continue economical operation of the units. Duke Energy (NYSE: DUK) (Charlotte, North Carolina) will shut down approximately 326 megawatts (MW) and Reliant Resources Incorporated (NYSE: RRI) (Houston, Texas) is shutting down 824 MW for a total of 1,136 MW between the companies. This paradox, however unsettling to electric consumers in California, is a sign of the growing pains of California's deregulated power industry.

Industrialinfo.com's Power Generation Database has detailed information on over 1,100 operational power units in California, representing 58,405 MW of capacity. Fifteen units representing 2,100MW are scheduled to shutdown between now and 2006.

The trend for new power plant construction in California is for power generation developers to promote and construct new, cheaper to operate natural gas fired combustion turbine plants. The newer combustion turbine technology has made older natural gas fired boiler/steam turbine technology, such as those used at the Duke and Reliant Resources plants, obsolete in cost of operation comparison.

So, in the irony of all ironies, power hungry California, with past and potential future power shortages, is shutting down power plants.

Duke Energy's Morro Bay Power Station in San Luis Obispo County California (PLANT 1008202) will lose about one third of its capacity. Reliant Resources will be shutting down 21.2% of their total 3,884 MW capacity for the state at Etiwanda, Mandalay and Ellwood Power Stations (PLANTS 1013486, 1013417 & 1053850).

How does this affect California households? One megawatt of power equals the power to run 1,000 homes; so 1,136 MW has the potential to electrify over a million homes. Theoretically, consumers should be paying less for electricity now that these older units have been retired. But is this really happening?

California, one of the nation's leaders in power generation deregulation at the end of the 20th century, has had much publicized problems in maintaining cheap electric power. Independent power producers have had difficulties attaining environmental permits allowing them to build new plants in the state. Add on top of this the fact that power supply has not been able to keep up with demand in the state. Ideally, in a deregulated power industry, competing companies using new less expensive technologies should lower the price of electricity. California has allowed some plants to go ahead with construction, but not enough to keep up with demand growth. This has forced California consumers to pay a premium on electricity imported from other states in the past and most likely again in the future.