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The drop in operating and wholesale energy costs "largely follows the trend in the price of natural gas," CAISO said, noting that after rising "steadily" in the 2003-2005 time frame, prices dropped in 2006.

Natural gas-fired generation continued to account for the majority of the megawatts moved over the CAISO grid in 2006, representing 38% of the power. The next largest share was imported power at 25%, which included all fuel types. Hydroelectric supplies represented 15% of the CAISO load in 2006, and nuclear-generated power 13%. The rest was a combination of three renewables -- biomass, geothermal and wind -- at 5% and the rest were unspecified sources of power at 4%.

Average "all-in" wholesale energy costs -- when adjusted for natural gas prices -- declined almost 18% from $57.83/MWh in 2005 to $47.55/MWh last year. "This reflects a decline in the total costs associated with serving [wholesale electricity load] in the CAISO control area and includes costs associated with forward-scheduled energy, inter-zonal congestion, real-time energy and congestion management, local reliability needs, ancillary service reserves and CAISO-related charges, such as the grid management charge," the grid operator said.

CAISO Board of Governors Chair Mason Willrich characterized 2006 as a year in which CAISO managed to "strengthen the state's transmission system and promote renewable energy's availability." He said the board approved more than $3.25 billion in investments in 41 separate projects.

Wholesale energy costs overall declined 16% during the year from $13.6 billion in 2005 to $11.4 billion last year, following three consecutive years of cost increases.

Among the grid operator's 2006 accomplishments were exceeding "all operating standards" of the Western Electricity Coordinating Council, handling an all-time record peak demand of 50,270 MW during the 1-in-57-year heat storm in July 2006 and dropping grid reliability costs "substantially" for a second consecutive year (down 57% since 2004).

CAISO CEO Ykout Mansour called the grid operations in 2006 "highly successful" for both CAISO and the power industry as a whole. He called the industry's 2006 story "compelling as the benefits of wholesale market competition continue to materialize."

Mansour said CAISO's market monitoring department, a beefed-up unit in the wake of the 2000-2001 wholesale energy market meltdown, "found increased levels of competition within the California energy markets" last year, with generation outages that were "extraordinarily low" during last summer's heat storm.

"That [development] coupled with a higher level of forward contracting by load-serving entities is tremendously helpful to CAISO operators and their charge to keep the lights on."