SAN DIEGO — By burning cheap oil in its South Bay and Encina electric generating plants, San Diego Gas & Electric has reversed its role as an electric-poor utility and started generating enough electricity to meet its own power needs and make occasional electric sales to other utilities.
Although utilities across the country have been cutting fuel costs by switching from coal or natural gas to oil, SDG&E is the "first utility we've heard about that has switched from gas to oil and actually started generating excess electricity," according to a spokeswoman for the Edison Electric Institute, a Washington, D.C.-based industry group.
For the past month, SDG&E, which historically has purchased much of its electricity from other utilities, has been burning lower cost oil in the two plants and selling the excess power to utilities in Arizona, New Mexico and the Republic of Mexico.
For SDG&E and a handful of other utilities around the country that signed long-term oil contracts during the 1970s as sky-high oil prices boosted utility rates, the current cheap oil scenario has proved to be sweet.
"As oil prices have come tumbling down . . . fuel oil has become competitive with coal for the first time in my memory," said Mike Niggli, SDG&E's director of fuel and power contracts who has chronicled fuel costs for the past 15 years.
By burning lower-cost oil in the two generating plants that normally have been burning natural gas, SDG&E has produced power that is cheaper than the electricity produced by coal-fired generation plants in the Southwest. Consequently, on an hour-by-hour basis, SDG&E has sold about 100 megawatts of excess power to utilities that normally count on coal-fired generating units for their lowest-cost electricity, said Niggli.
SDG&E has been shipping the bulk of its excess power to utilities in the Southwest, using the Southwest Powerlink which was constructed to allow SDG&E to import between 400 megawatts and 500 megawatts of electricity generated by coal-fired plants owned by coal-rich Southwestern utilities.
SDG&E's contracts with those coal-rich utilities allow it to slow or stop purchases of electricity, Niggli said.
Consequently, during hours when SDG&E can both meet its own needs and generate electricity that undercuts the price of power produced by coal-fired plants, the Powerlink has been carrying electric power out of San Diego.
"Just a few just a few months ago, it used to cost over 5 cents per kilowatt hour to generate electricity at our oil-fired plants," Niggli said. "Today that electricity costs just about 2 cents per kilowatt hour."
Last year, SDG&E burned oil to produce 6% of its electric power. Oil now accounts for nearly 40% of SDG&E's electricity, and Niggli said the utility will probably buy nearly 3 million barrels of cheap oil by year's end.
It Won't Last
Niggli acknowledged that SDG&E's role as a low-cost electric supplier won't last long.
"This situation should continue into the summer or fall and might start to change when the demand for fuel oil picks up in the Northeast," said Niggli. "Of course, that's subject to OPEC not regaining control of the market."
Although cheaper oil will cut SDG&E's electric-generating costs, SDG&E's customers won't realize tremendous savings because the utility wasn't using much oil before the world market plummeted.
Instead, SDG&E generated its own electricity by burning relatively cheap natural gas or imported low-cost, coal-fired power from utilities with a surplus.
And rate payers are still paying for SDG&E's portion of the expensive San Onofre Nuclear Generating Station and the Southwest Powerlink. Additionally, SDG&E has had to bolster its capital spending program to meet the demand generated by a record-breaking number of new hookups.