San Diego Union-Tribune

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13-Jan-2001 Saturday 

CALIFORNIA POWER CRISIS 
   Urgent talks held to abate energy chaos 


Ed Mendel and Dean Calbreath and Toby Eckert 
STAFF WRITERS | COPLEY NEWS SERVICE 

Negotiators in Washington, D.C., were trying yesterday to put the finishing touches on a plan to tame California's chaotic power market, including a proposal for long-term power contracts priced far lower than current rates
but significantly higher than consumers were paying last spring.

Federal, state and power industry officials are slated to meet this afternoon at U.S. Energy Department headquarters in hopes of ratifying an agreement, with Gov. Gray Davis participating via teleconference from Los Angeles.

Yesterday, Davis joined with the governors of Washington and Oregon to call upon the federal government "in the strongest possible terms" to set "effective price controls" in the Western states.

Concluding a summit in Sacramento, the governors said they will seek congressional action if federal regulators do not act. California legislators -- ranging from Democratic Sen. Dianne Feinstein to Republican Rep. Duncan Hunter -- are already crafting legislation requiring caps. Rep. Anna Eshoo from San Mateo County is even working on a bill to get San Diegans a refund for the high rates they paid last summer.

The moves to resolve the energy crisis came just a day after the California Independent System Operator, which manages most of the state's power grid, said the state narrowly averted a round of rolling blackouts because of shortages.

But other state officials wondered aloud yesterday whether Thursday's Stage 3 power emergency was manufactured by electricity providers to drive prices higher.

"If you define `power crisis' by the availability of generated power on the market, then this power crisis was not real," said Frank Wolak, a Stanford University professor and member of the University of California Energy Institute. He also is chairman of the ISO's market surveillance committee.

Despite skepticism about the energy crisis, the negotiations in Washington and Sacramento yesterday took on a sense of urgency.

Under one proposal being floated in Washington, the state would seek bids for long-term power contracts, perhaps as early as next week, with a price goal of 5.5 cents per kilowatt-hour.

The bids would seek to lock in supplies between now and 2015, according to a source close to the talks, though the length of any contracts would depend on what the suppliers and the state agree to.

The proposed price is far less than the 40 cents per kilowatt-hour or more that has been charged recently in the short-term market to which California utilities have been tied.

But seven months ago, Californians were paying about 4 cents. Consumer advocates are wary of the long-term contracts, warning that they could lock in high prices even if market prices go lower, as expected, in the next few years.

Power generators and marketers reportedly wanted contracts up to eight years and rates of about 8.5 cents a kilowatt-hour. They also felt consumers had to bear some of the burden through higher rates.

The talks took place against a backdrop of threatened blackouts that occurred after an unprecedented number of power plants shut down or reduced output Wednesday and Thursday, claiming maintenance problems.

The shutdowns, coupled with a storm-related slowdown at the Diablo Canyon nuclear power plant, took 15,000 megawatts out of the state's power system -- enough for 1.5 million homes.

The simultaneous shutdowns of power plants raised questions with officials at the ISO and the governor's office.

"We were operating with 45,000 megawatts in summer and now we're barely hitting 30,000," Wolak said. "I haven't heard of anybody blowing up power plants. The evidence seems to indicate that generators are withholding capacity, since it's much easier to get a higher price if you keep your product out of the market."

The California Public Utilities Commission sent inspectors to several plants to check why they were reducing output. But when PUC inspectors went to a Southern California plant run by American Energy Services, they were denied admission for nine hours.

Loretta Lynch, head of the commission, told an Assembly committee she did not know yet if the inspectors found any improper conduct at the facility. American Energy officials could not be reached for comment.

The governor's office suggested that power generators had a vested interest in limiting their supplies to California. Prices have soared over the past few days as California hovered at the brink of crisis. At one point Thursday, the wholesale price of electricity hit $1,000 per megawatt -- four times as high as the ceiling price in early December.

High wholesale prices have battered the finances of California utilities.

State law prohibits Pacific Gas & Electric and Southern California Edison from passing on to consumers the full cost of the power. That has dried up the utilities' credit and threatened their solvency.

Rates for customers of San Diego Gas & Electric also are capped. But the difference between what the company pays for power and what it can charge consumers is accumulating in a huge IOU.

Californians are not alone in their skepticism about power supplies.

The Union of Concerned Scientists yesterday accused PG&E Corp. -- parent company of San Francisco's Pacific Gas & Electric -- of keeping power plants in New England out of service to drive up consumer prices.

The group said the number of power plant outages has risen 47 percent in New England since May 1999, when the Northeastern states opened to competition. Prices have soared as a result. PG&E's 20 New England plants are run by a different subsidiary than the California utility, which says it is on the verge of bankruptcy.

PG&E officials respond that the New England shutdowns occurred to comply with environmental regulations.

Blackouts in California were averted Thursday only because of an influx of power from Washington and Oregon, as well as a purchase from Canada by the Department of Water Resources. The Canadian firm BC Hydro had previously cut off supplies to the state, after credit ratings were lowered on the ISO.

Washington and Oregon have been sending as much as 9,000 megawatts a day to California. That has put a strain on the Northwestern states, because California has abandoned a long-standing arrangement in which it exports power to the Northwest in the winter in return for importing power during the summer to help run air conditioners.

Davis told the governors he expects to solve California's electricity problem in the next 90 days.

"Hopefully, six months from now it will be a very distant memory and we can return to our historical relationship," Davis said.

Washington Gov. Gary Locke said the governor's plan to have California buy power through long-term contracts gives generators in his state confidence that bills for providing power to California utilities will be paid.

All the Western governors are invited to an energy summit Feb. 2 in Portland.

Davis released a plan to cut California's electricity use by 5 percent. Among other things, the state Department of Water Resources will cut its peak load by 450 megawatts per hour and in some conditions up to 1,200 megawatts, while state buildings, prisons and universities will reduce peak use by 200 megawatts per hour, and cities and counties will be asked to save 300 megawatts.

This week, Davis asked Californians to reduce their electricity use by 7 percent. But the governor noted yesterday that California has pursued energy conservation for years, dropping its per-capita energy consumption
to about 47th among all states.

STAGE 2

The California Independent System Operator, manager of the state's power grid, declared a Stage 2 alert yesterday after reserves dropped to less than 5 percent of available energy.