Ahmed Kaloko, Ph.D. Director Bureau of Conservation, Economics & Energy Planning Harrisburg PA COMPARISON OF PJM-ISO WITH CALIFORNIA-ISO Pennsylvania Public Utility Commission

Pennsylvania & California Electric Restructuring Comparison

Customer Participation: Electric Competition Number of Customers: n Pennsylvania 10.3% n California 2% n New Jersey 2.2% n Massachusetts.006% Total Customer Load Total Customer Load n Pennsylvania 23.5% n California % n New Jersey 10% n Massachusetts 10%

Comparison of PJM-ISO with California-ISO

Major Differences Between PJM-ISO & California-ISO Drivers of Change, Objectives, Design of ISOs

Comparison of PJM-ISO with California-ISO

U.S. Energy Crisis the Deep Freeze Winter of n What Happened ? End of the Gas Bubble due to reduction in Gas Exploration and Production in the U.SEnd of the Gas Bubble due to reduction in Gas Exploration and Production in the U.S Severe Heat Wave in May and June 2000Severe Heat Wave in May and June 2000 Gas Storage down 10% below normal levels due to strong economy & use of gas for Electric Generation. Crude Oil Prices Up $30/Barrel, first time in 9 Years: thus Energy CrisisGas Storage down 10% below normal levels due to strong economy & use of gas for Electric Generation. Crude Oil Prices Up $30/Barrel, first time in 9 Years: thus Energy Crisis Natural Gas Prices increased in June 2000 from $2.30/Mcf to $3.50/McfNatural Gas Prices increased in June 2000 from $2.30/Mcf to $3.50/Mcf

U.S Energy Crisis the Deep Freeze Winter of n What Happened Natural Gas is the fuel of choice for the future. It is clean and environmentally friendlyNatural Gas is the fuel of choice for the future. It is clean and environmentally friendly The shortage in gas supply in Summer & Autumn continues to increase prices from $3.10/Mcf to $5.50/Mcf in September Crude oil dropped to $28/Barrel, but OPEC Plans cut productionThe shortage in gas supply in Summer & Autumn continues to increase prices from $3.10/Mcf to $5.50/Mcf in September Crude oil dropped to $28/Barrel, but OPEC Plans cut production The Deep Freeze of November 2000 & January 2001 increased gas prices to $9/McfThe Deep Freeze of November 2000 & January 2001 increased gas prices to $9/Mcf

California’s Energy Crisis What Went Wrong? (FERC Report) n Many Factors led to Price Spikes Requiring Utilities to Divest Power GenerationRequiring Utilities to Divest Power Generation Design of ISO & Market ManipulationDesign of ISO & Market Manipulation Strong Economic Growth, increase in Population=12% increase in Peak DemandStrong Economic Growth, increase in Population=12% increase in Peak Demand Lack of Energy Planning-Inadequate SupplyLack of Energy Planning-Inadequate Supply Strong Demand, Load Growth & Heat WaveStrong Demand, Load Growth & Heat Wave Generation & Transmission Supply ConstraintsGeneration & Transmission Supply Constraints Significantly Higher Prices for Energy SupplySignificantly Higher Prices for Energy Supply

California ISO Average Load & PX Prices (FERC Report & CAL-ISO) n May-00: Load MW, Price $50.4/Mwh n June-00: Load MW, Price $132.4/Mwh n July-00: Load MW, Price $115.3/Mwh n Aug-00: Load MW, Price $175.8/Mwh n Sept-00: Load MW, Price $119.6/Mwh

California ISO Average Load & PX Prices (FERC Report & CAL-ISO) n Peak demand increased by 5,522 MW from , but only by 672 MW of Net Capacity was added. Result (FERC Staff Report) n Significant decrease in Bulk Power Imports into ISO throughout the Summer of 2000 n ISO Bulk Power Imports decreased by 40 percent

California’s ISO Energy Constraints n California Generator owners exported power from California to regions that are willing to pay much higher prices for their energy, thus creating a shortage of power in California (FERC Staff) n California’s demand for energy cannot be matched with available transmission capacity (FERC Staff Report)

California’s Unplanned Power Outages Summer Of 2000 n Year 2000 Planned & Unplanned Outages increased by 53% in June, 57% in July & 23.5% in August Compared to 1999 n Average megawatts out of service increased by 77% in June, 121% in July & 461% in August above same period in 1999 (FERC Staff Report)

Electricity Price Increases: California & New York City n Higher Gas Prices & NO x Emission Credits significantly increased generation costs to $26/Mwh from $90/Mwh. Calculation includes Fuel Costs for Combine Cycle, NO x Credits for Gas Peaking (FERC)

Summary/Conclusion n PJM-ISO & California ISO used different models in their design & that is why the results of their operations are different n PJM received support from the Mid- Atlantic states while California was caught in a noisy debate regarding the design of the ISO

Summary/Conclusion n PJM’s energy capacity & transmission & ancillary markets are all under the control of the ISO. The separation of these markets in the California ISO created a significant operational problem n Market monitoring is one of the most important functions of state PUCs & ISOs. Clearly, PJM-ISO has a better market monitoring unit than California ISO.

Summary/Conclusion n Failure to aggressively monitor the electricity ultimately creates market manipulation n PJM-ISO has a better full mix than California ISO. The gas shortage & the run up of gas prices significantly increased electric prices in California