Union Tribune

June 25, 2002 

State lags on power plants, GAO says
Officials dispute some assertions made in report

By TOBY ECKERT 
COPLEY NEWS SERVICE 

WASHINGTON Falling power prices, turmoil in the energy
industry and concerns about state involvement in the electricity
market have slowed the development of power plants in
California, according to a congressional study released yesterday.

But state officials disputed some of the report's assertions, saying
dozens of plants had come on line or were in the works.

Fifty-nine proposed power plants, representing 11,500 megawatts
of generation, either were canceled or postponed as of December
2001, according to the General Accounting Office, the
investigative arm of Congress. A megawatt can power 750 to
1,000 homes.

But Steve Maviglio, a spokesman for Gov. Gray Davis, said
developers have indicated to the state that only five power plants
with a total capacity of 3,200 megawatts will be postponed,
for up to two years. The GAO may have been counting projects
that never got beyond the discussion phase, he said, citing
California Energy Commission data.

Republican lawmakers who have been critical of Davis' handling
of California's power crisis asked for the study and said the state
is driving away needed power plants. They singled out concerns
that developers voiced to the GAO about state intervention in the
market.

"The state's deep involvement in electricity markets is creating
great uncertainty because power generators have no set of clear
rules," said Rep. Steve Horn, R-Long Beach. "That means that
money markets have no incentives to finance new power plants for
our long-term needs. The result is a steady drift back toward
another energy crisis in which Californians once again are
vulnerable to power outages and price gouging."

But state energy officials said any plant cancellations and delays
were mostly a result of market conditions and the end of a "gold
rush" mentality that prevailed during the 2000-01 power crisis,
when wholesale electricity prices hit unprecedented levels. Federal
regulators capped prices a year ago.

The state was justified in intervening in the market to stop price
gouging, the officials said.

Maviglio said 33 new power plants, representing 12,170
megawatts of generation, have been approved since Davis took
office in 1999. The state will add more than 2,500 megawatts of
generation this summer, 4,050 megawatts next summer and 1,556
megawatts in 2004, according to the California Energy
Commission.

"We certainly are building enough capacity at this time to meet our
growth," said Claudia Chandler, assistant executive director of the
commission.

Neither the commission nor the California Independent System
Operator is predicting the sort of severe power shortages and
rolling blackouts that rocked the state last year.

But ISO spokesman Gregg Fishman said the plant postponements
and cancellations "cause us some concern."

Horn and Rep. Doug Ose, R-Sacramento, asked the GAO to
compare the pace of power plant construction in California with
that of Pennsylvania and Texas. Those two states are viewed as
having more success with power market deregulation than
California, though both have experienced some price increases.

Based on state and industry data and interviews with developers
and analysts, the GAO report concluded that:

Uncertainty caused by the Sept. 11 terrorist attacks, the
slowdown of the economy and the collapse of Enron Corp. has
"further limited developers' near-term ability to propose and build
new power plants because the international capital markets are
less willing to invest in energy projects."

Texas and Pennsylvania also have experienced significant power
plant cancellations or delays, but California had the sharpest
among the three.

On average, it took 14 months to win regulatory approval for
a new power plant in California between 1995 and 2001, the
years studied by the GAO. But "the duration of the regulatory
review process was less predictable" in California than in Texas
and Pennsylvania, with some projects waiting 18 months for
approval.

The average approval time in Pennsylvania also was 14 months,
while it was eight months in Texas. In California and Pennsylvania,
most plants were proposed for areas with air quality that did not
meet federal standards, requiring those plants to have more
stringent pollution controls.

Chandler said most plants in California are approved in six to 12
months. During the height of the power crisis, the state instituted
special 21-day and four-month approvals that have since expired,
she said.

Gov. Davis' control of appointments to the ISO's governing
board, the creation of a California Power Authority that can
finance power plants and the state's desire to revise costly
long-term electricity contracts make power plant developers wary
of the market.

"Developers remain concerned that the state may receive special
treatment from the transmission operator. This concern continues
because the state has so much potential influence over the market,
which raises the risk of entering the market for independent
developers."