California’s shiny new wholesale power market and customer choice program started in 1998 and worked pretty well the first two years. Then all deregulatory hell broke loose.
By December 2000, according to the federal Energy Information Administration (EIA), market manipulation created power shortages which in turn spawned rolling blackouts. Wholesale rates shot up, reaching $377 per megawatt-hour on the California Power Exchange, more than 12 times the average clearing price of $29.71 a year earlier.
The state’s three major investor-owned utilities—Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric—slid to the edge of insolvency. PG&E, the biggest, was in the worst shape, and filed for bankruptcy on April 6, 2001. In the previous 10 months the company had spent $9 billion on wholesale power.
Truckee Donner Public Utility District, an NRECA member with just 13,000 consumers compared to PG&E’s 5 million, got caught up in the mess.
“We were like a minnow swimming among hungry sharks,” recalls Public Information Officer Steven Poncelet.
TDPUD, which is based in Truckee, Calif., a bustling mountain town near Lake Tahoe and the Nevada border, saw its wholesale power rates jump from a range of $28 to $36 per MWh to a range of $100 to $140.
“Enron and others started manipulating the market,” Poncelet says.
Indeed, criminal investigations revealed that the energy marketing company had created both real and artificial shortages to drive up prices and reap profits.
Desperate for some certainty in a wildly fluctuating market, Truckee Donner PUD in 2001 signed a seven-year contract with IdaCorp Energy for $72/MWh. But within months, prices collapsed to around $35.
TDPUD filed a lawsuit the next year accusing Boise, Idaho-based IdaCorp of charging unfair and unreasonable prices. Their lawyers argued that the utility likely would end up bankrupt if it had to honor the contract.
In January 2003, the two parties signed a settlement, with TDPUD agreeing to pay $26 million to be released from the contract and IdaCorp agreeing to sell TDPUD wholesale power at $42/MWh for three months to give them time to find a more permanent solution.
Two months later, TDPUD Power Supply Engineer Steve Hollabaugh brought to the board of directors a new contract proposal. The board unanimously approved Constellation Power Source as the PUD’s supplier with a wholesale rate of $49.95/ MWh that would save the PUD from having to raise retail rates.
“I was worried that if [the bid] came in much higher, we’d have to have a rate increase around 2004. This rate just barely makes it below that margin,” he told the Sierra Sun.
He told the paper that the utility’s lawyers had not reached a favorable settlement with IdaCorp Energy, retail rates would have had to go up 30 percent. (Truckee Donner PUD did have to borrow to pay for the settlement, and that loan was retired in 2013.)
Over the next several years, Truckee Donner diversified its wholesale power portfolio and today has some of the most competitive retail rates in California. It also invested is system reliability and resiliency, Poncelet notes.
Sixty-two percent of its power now comes from renewable resources, and this is projected to rise to 75 percent next year when the Red Mesa Solar Project in southeastern Utah comes online.
The minnow, it seems, had outwitted the sharks.