The California Independent System Operator has forecasted California to be nearly 4,000 megawatts short of generation needed to serve peak demand. Some forecasters place the shortage as high as 8,000 megawatts. There is no way to construct new generation equipment in time to meet a shortfall of this magnitude within the next 60 days. The only practical option for bringing supply and demand back in balance is to rely on negawatts. The negawatt concept is one of demand curtailment. Such demand curtailment reduces the electricity load on the system, and can thereby avoid blackouts if the load can be reduced by an amount equal to or greater than the shortfall of generation the system is facing. As is obvious, these demand reductions have the same net effect as an increase in generation. Indeed, a blackout is merely a chaotic, and perhaps catastrophic demand reduction.

Utility control areas have well established mechanisms for exchanging megawatts of emergency supply between each other in times of crisis. However, those same utilities can typically purchase negawatts only from within their own service territory. No practical mechanism exists for getting someone else's retail customers to interrupt. California has a number of initiatives underway for this summer to produce negawatts of demand curtailment within California. However, insufficient negawatts are located within California to cover the expected shortfall.

THE RELIANT PROPOSAL

There is a clear and compelling need to establish a mechanism for allowing negawatts of emergency supply to be easily purchased in the same way as megawatts of additional supply. This would enable a deficit area such as California to purchase emergency supply from anywhere within the West. Such a mechanism has three essential elements:

Reliant's proposal is to conduct weekly and daily bid auctions, inviting retail loads to interrupt and make available the curtailed amount for assistance in satisfying emergency needs somewhere else in the western interconnection. Load customers will bid a specific price per kilowatt hour for interrupting and the amount of load in megawatts that they are prepared to interrupt. The party administering the program would use these individual customer bids to develop a bid stack of available emergency resources, and to be made available to everyone in the western interconnection as needed.

If a specific system needed help, such as the California ISO, they would notify the program administrator. The program administrator would then verify the least cost set of bids that could be exported, taking into consideration available transmission. Once those bids have been identified, the customers and their host utility control areas would be notified. The customer would then interrupt, and the host utility would turn the curtailed megawatts into an export schedule destined for delivery to the deficit utility. At this point the transaction would look exactly like any other emergency transfer which currently takes place within the West. Transmission scheduling would be done exactly the way it is for any other emergency transaction.

The control area receiving assistance would pay for the negawatts dispatched to assist them. The customer who makes the voluntary load curtailment would continue to compensate their retail supplier for their pre-curtailment level of retail purchases. In other words, they would keep the original retail supplier, whether it be the utility or a third party load serving entity, completely whole for the compensation that would have been received had the customer not interrupted. If the customer fails to interrupt the full amount they committed in their bid proposal, they would be responsible for compensating the transmission provider for imbalance charges under the transmission providers approved FERC tariff. Ultimately the curtailing customer would receive as compensation the bid price times the quantity of actual negawatt curtailment minus the retail charges he pays to his retail provider and minus any imbalance payment due to the transmission provider.

The biggest hurdle facing this program is getting it implemented within the next 60 days. There are, however, at least two vendors who have indicated a willingness and capability of accomplishing such. What we now need is for an organization or a government entity to initiate the program.

Although the issue is unsettled as to whether or not this negawatt transaction is a retail or a wholesale transaction, federal legislation could quickly resolve such ambiguity.

Participants in this program may also need exemption from PUCHA.

The primary objection being voiced in opposition to this proposal seems to be the belief that the entity serving the curtailing customer should be entitled to some share of the compensation. This will likely increase the cost to the buyer, but is simple to incorporate into the program, if determined to be appropriate.

The final hurdle is encouraging participation by customers throughout the western region. Reliant Energy has already been in contact with a number of large commercial and industrial customer trade organizations including ELCON. Those organizations state a willingness to provide this function for the benefit of their constituents.

This proposal has been discussed with key policymakers in a number of western states including Arizona, Colorado, Nevada, Oregon, Washington, Utah, Wyoming, and California. It has been presented to the Western Systems Coordinating Council, the organization which manages reliability of the western electrical grid. The idea has also been discussed with a number of key congressional leaders, FERC commissioners, and numerous industry trade organizations. The reaction from all of these parties has generally been from mildly positive to strong support. In talking with vendors it appears that this program could be implemented for under $500,000 with participating curtailing customers paying a fee of less than $1,000 each for initial enrollment and a per transaction fee of under $100 each.

In closing, it might be interesting to note that this program is simply a way of providing an option to customers who would otherwise have almost 100% certainty of facing forced blackouts this summer. This option allows other customers to voluntarily stand in their place and limit the consequences of the outage to those customers best prepared and willing to deal with those consequences. It may not eliminate forced blackouts for all customers but it is clearly a significant step in the right direction.