An extended period of unstable electricity prices in the West has politicians scrambling to ease the pain of customers whose rates have doubled and tripled. But independent generation developers, undaunted by the prospect of politically motivated manipulation of the market, are forging ahead with plans to meet urgent demand.

(Graphics by Nancy Soulliard for ENR)

The extraordinary rate hikes in California's San Diego and Orange counties have led even strong proponents of the state's deregulation process to question its wisdom (ENR 8/7 p. 14). On Aug. 21, the state Public Utilities Commission caved in to political pressure, approving a rate cap for commercial and residential customers.

San Jose-based developer Calpine Corp. remains committed to California. Spokesman Bill Highlander says 65% of Calpine's output is sold under long-term contracts, leaving 35% exposed to the cap. Calpine expects to finish the $250-million, 500-Mw combined-cycle Los Medanos powerplant in Pittsburg next year.

California's lengthy siting and permitting process is a special area of concern, says Richard Wheatley, spokesman for Reliant Energy, Houston. Gov. Gray Davis (D) this month issued an executive order directing state permitting agencies to expedite siting without compromising public health or environmental quality. Steven Kelly, policy director at Sacramento-based Independent Energy Producers Association, says his staff's work with the California Energy Commission may help reduce siting time from 12 to six months.

California's woes so far do not appear to be weakening support for market restructuring elsewhere. Jim McDonald, a spokesman for Arizona Public Service Co., contends that the crisis in San Diego and Orange counties has not given anyone pause. "We expect significant generation to come on line during the next three years to ease the market pressure," he says. By 2010, APS's load is expected to increase by 1,500 Mw. APS alone plans to add 3,000 Mw of new capacity, he says.

Nevada too is plunging ahead. Under a settlement approved in July by the state Public Utilities Commission, Nevada Power Co. will be permitted increases totaling 7%. Capacity addition could follow "if the market opens up here, and we have some stability in the rules," says Duane Nelson, director of transmission development for Reno, Nev.-based Sierra Pacific Power Co. "We're seeing some significant interest in building new capacity."

In the Pacific Northwest, electricity price spikes, though less severe, are forcing some companies to cut back on production or shut down. A copper mine, some aluminum plants and paper mills laid off thousands of workers this summer. Administrators for the Bonneville Power Administration blame increased demand, supply shortage and lagging development of new power sources for the energy crisis. But industry growth is looming on the horizon.

"The big issue is that the power industry is still regulated," says Bob Boschee of Smurfit-Stone Corp., a cardboard manufacturing plant in Frenchtown, Mont. Boschee curtailed his plant's operations when prices jumped from $25 per Mw to $150. "There are not enough players to create a true free market. If we get totally deregulated it would be a good thing."

That may take some time. Montana in 1997 led the way in the Northwest. In 2001, Oregon will allow industrial and large commercial customers access to the free market. But other states are "approaching deregulation cautiously," says Marilyn Meehan of the Utilities and Transportation Commission in Olympia, which has not entered the restructuring arena. Idaho also hasn't moved on restructuring as yet.

BPA Administrator Judi Johansen says the region is "in imminent danger of electricity deficits." The Northwest Power Planning Council, Portland, Ore., says the region needs 3,000 Mw added to the system by 2003 to head off projected deficiencies.

But new facilities are not going up quickly enough. "Companies looking for locations to build powerplants typically look at market conditions," says Jef Freeman, vice president of Cogentrix Energy Inc., Charlotte, N.C., which plans to complete work on a 250 Mw gas-fired plant at Rathdrum, Idaho, next year.

FINISHING UP Los Medanos rises despite California's rate caps. (Photo courtesy of Calpine Corp.)

Most states have already streamlined the permitting process. What was once a 30-month process in Montana now takes about a year, says Larry Nordell of the Dept. of Environmental Quality. In Oregon, where regulators are concerned over increased emissions, contractors face a process that could extend 18 months to two years, says John White, energy facility analyst with the Office of Energy. Idaho has no central permitting.

Developers say they can tolerate temporary tinkering with price caps. Although concerned about California's actions, no one so far seems ready to walk away from what is still considered a promising investment.