---------------------- Forwarded by Scott Neal/HOU/ECT on 11/20/2000 12:09 PM 
---------------------------


"scott neal" <sneal12@mindspring.com> on 11/18/2000 01:30:30 PM
To: <sneal@enron.com>
cc:  
Subject: wall st. journal article





California Power Plants Get Jolt
As Natural-Gas Supplies Are  Cut

By Rebecca Smith
Staff Reporter of The Wall Street Journal  

LOS ANGELES -- Southern California power plants, already stressed to their  
limits last summer, got another jolt this week as a cold snap caused a sharp  
curtailment of supplies of natural gas used to generate electricity. 

The power plants were able to switch to burning oil and continue to produce  
electricity. But the unusual curtailment of natural gas underlines concerns 
that  an increased reliance on gas for power generation across the U.S. is 
putting the  reliability of the nation's electricity supply at risk. 

That's because virtually all power plants now under construction in the U.S.  
burn gas and only gas. The units affected this week in San Diego were able 
to  shift to oil only because they were older plants that originally were  
constructed to burn oil. Generators have been reluctant to add a dual-fuel  
flexibility to plants in recent years because oil is far more polluting than 
gas  and generally has been costlier. 

In California, where gas-supply problems first surfaced on Monday in San  
Diego, there is pessimism about a Hydra-like energy crisis that seems to 
grow  new heads every day. The state weathered three-dozen electrical 
emergencies last  summer, caused by a shortage of electricity. Officials had 
hoped to solve the  problem by speeding up construction of new generating 
plants. Now, they're  finding the state may be building its way out of an 
electrical problem and into  a gas problem. 

One official, who has been warning of the danger of reliance on a single  
fuel, said this week's disruption pointed out the necessity of developing a  
comprehensive energy policy that recognizes how changes in usage of oil, gas 
and  electricity affect each other. "We don't just need new generating plants 
and  transmission lines, we may need pipelines, too," said Terry Winter, 
chief  executive officer of the California Independent System Operator, the  
organization responsible for maintaining adequate electricity supplies. "You  
can't look at these things in isolation." 

The natural-gas problems surfaced when the local gas-distribution company,  
San Diego Gas & Electric Co., notified power-plant operators and a handful  
of industrial users that it would be restricting their gas use by about half. 
In  California, residential and small businesses have first crack at natural 
gas,  and industrial uses are regarded as secondary, even if they are 
generating  plants. Dynegy Inc., the Houston-based energy concern that owns  
some of the older plants that serve San Diego, immediately switched to oil. 
But  it didn't like doing so; its plants create three times as much pollution 
when  they burn oil and exhaust valuable air-pollution emission credits that 
power  plants here need to operate. 

The San Diego units couldn't simply be shut down, because the state was 
short  of power. Roughly 30% of the state's capacity already was off-line, 
including  many of its nuclear units, as most of those plants are now 
undergoing repair  after being run at capacity limits throughout the summer. 

What's more, the gas-pipeline system that feeds San Diego isn't big enough 
to  begin with. The system was built primarily to serve residential customers 
and  not big power plants. 

The problems could persist, off and on, through the winter. That's because  
gas-storage levels are down sharply from a year ago throughout the nation, 
but  especially in California, because it ran its gas-fired units so hard 
last  summer. This time last year, Southern California had 87 billion cubic 
feet of  gas in storage. Now, it's roughly 50 billion cubic feet, or 43% 
less. Prices  also have moved up sharply, from roughly $2.50 a million 
British thermal units  to around $8 this week. Nationally, storage levels are 
down about 8% from a year  ago. 

"Gas is trading higher in California than anywhere else in the nation," said  
John Lavorato, chief operating officer of Enron North America, a unit of 
Enron Corp. of Houston. But he said they're headed up  in the Northeast, 
based on cold weather forecast for the next 10 days to two  weeks. 

High prices for fuel also push up prices for the end product, electricity. 
In  California the average price for electricity to be delivered Thursday was 
$228  per megawatt hour. That's double the price a week ago and five times 
the price a  year earlier.