TOPICS > Economy

Power Crunch in California

January 31, 2001 at 12:00 AM EDT


SPENCER MICHELS: For nearly four million people living in Los Angeles, there’s no lack of power. While the rest of the state sweats out rolling blackouts, Angelinos get their electricity from the city’s Department of Water and Power, at low rates. DWP, as it’s called, uses its own power plants to make electricity, which it then sells to the people of the city. While the system of public or municipal power has had its critics, today it works so well in LA that the city is making more juice than it can use. That’s what has made the general manager of DWP, Dave Freeman, something of a hero in LA.

S. DAVID FREEMAN, Los Angeles Department of Water & Power: Our rates are 20% lower than the rates of the Edison Company, and they’re about to go bankrupt, and they need to raise their rates and PG&E needs to raise their rates. They’re all higher than ours. We have plenty of power, and they don’t. Now, who’s doing the job of the people, and who’s failing?

SPENCER MICHELS: Los Angeles is sitting pretty these days, selling, rather than buying power. The reason harks back to the 1930s, when the city, with federal help, brought water and power from the Hoover Dam to the dry coastal plain.

SPOKESMAN: Tonight marks the official opening of the power lines from the Colorado River, that will supply the city with electrical power distributed by the city’s municipal light plant.

SPENCER MICHELS: Today, the city operates four natural gas power plants inside the LA Basin, and it gets half of its electricity from a coal-fired plant in Utah. When private utilities were deregulated by the legislature in 1996 and had to sell their power plants, municipal utilities fought for the right to hold on to their own generating facilities. They won an exemption.

SPOKESMAN: This is unit one, this is unit two.

SPENCER MICHELS: The municipals have had a few problems. With natural gas prices on the rise, the Los Angeles Department of Water and Power has been paying more for fuel to run its generators. But it has made up for that by selling extra electricity.

SPOKESMAN: I’m saying that we are trying to sell the power to the state.

SPENCER MICHELS: In fact, when we visited DWP’s headquarters, staff members were nervously trying to sell excess power to parts of the state where it’s needed.

SPOKESMAN: I think I’m missing something.

SPOKESMAN: Now we have advanced $150 million worth of power. And now that the state’s buying it, we want to sell to the state. There’s no reason on God’s green earth why you can’t…

SPENCER MICHELS: Even at 75, Dave Freeman– the ruler of a small energy empire– is still impatient. He’s recently been appointed as a top energy advisor to Governor Gray Davis. But on this day, he was annoyed by the state bureaucracy for its slowness in accepting DWP’s offer of excess power.

S. DAVID FREEMAN: That’s where we prevent the brownouts and the blackouts at the last minute and we want to give them every damn megawatt we can, but we want to sell it to the state, which now is buying.

SPENCER MICHELS: Freeman is part of a tradition that began when electricity was first distributed in the 1880s. Municipals sprang up along with private companies, and the competition between them was often fierce. Private utilities fought hard to keep public power out, but they didn’t entirely succeed. Today, one of every seven Americans is served by public power. Some communities with municipal utilities, though not LA, have experienced blackouts, since much of their power comes to them over the statewide grid, and is therefore affected by the woes of the private utilities. And munis, which buy part of their power from private producers, have had to raise rates. But in general, since deregulation has failed so far to spur competition among power providers, municipals are doing very well. About 2,000 utilities in the country are municipal; about 30 in California. Not every muni is run the same. Palo Alto, in Northern California, has been supplying water, gas, and electricity for more than a century. Unlike Los Angeles, this department generates none of its own power. Rather, it buys federal power at favorable rates, and it doesn’t need to show a profit. Palo Alto gets most of its power from hydroelectric projects owned by the federal government. Municipal utilities have an advantage over their private brethren in that they get first crack at low-cost federal power, like that produced at Shasta Dam. Private utilities cannot usually buy that cheap electricity. Instead, they have had to pay exorbitant rates to private power producers. A Palo Alto home burning 750 kilowatt hours of energy a month pays $40.80. If the same home were using PG&E power, it would pay $91.29; 56% more. Private utilities, like PG&E, which make their money by selling electricity for profit, have always fought public power. One of their arguments has been that it is less efficient. Frank Wolak specializes in the economics of energy at Stanford University.

FRANK WOLAK, Stanford University Economist: The best model we have for a large organization run by the government is the US Postal Service, and even though it’s sort of one of the best postal services in the world, it’s not what we sort of hold up as the paragon of efficient management.

SPENCER MICHELS: Wolak gets his power from Palo Alto’s municipal utility. But he says the larger issue is that municipal utilities don’t have an incentive to keep costs down or to be responsive to their shareholders.

FRANK WOLAK: You can call up and complain, you can go to the city council meeting; you can do those sorts of things to try to get the municipality to be more responsive. And you can imagine, though, for a small municipality that’s going to work pretty well. But as the municipality grows larger and larger and larger, you know, my ability to influence that becomes less and less and less.

BRUCE BRUGMANN, Editor, San Francisco Bay Guardian: He should not be a professor at Stanford. He should be working on the PG&E payroll. The point is that the public entities can run and do run public power facilities very effectively.

SPENCER MICHELS: Bruce Brugmann, editor of the progressive weekly “San Francisco Bay Guardian,” has been crusading against Pacific Gas and Electric– PG&E– for 30 years and for public power in San Francisco. Brugmann says that private utilities have fought hard to keep San Francisco from becoming a public power city, even though the city generates power of its own in the Sierra.

BRUCE BRUGMANN: Well, sure, they’re against public power and they fight like hell to keep the private power private because there are enormous profits in it. PG&E uses every trick at its disposal, buying and selling politicians, governmental affairs people, ads in the papers. PG&E, or any private utility, does not want competition of any kind.

SPENCER MICHELS: When we asked PG&E to comment on municipal power for this story, a spokesman said the company would not, even though the topic is being discussed freely around the state. Since the crisis has hit, small groups of activists have joined the crusade against the private utilities, and for municipal power. They demonstrated on the streets of San Francisco recently, pushing for a takeover of PG&E by the city. While some politicians– especially those in San Francisco– have in the past turned a deaf ear to pleas for public power, today, Mayor Willie Brown, for one, is interested. He wants the airport to build its own electricity generation, but he goes even further.

MAYOR WILLIE BROWN: I am so worried about it, that I am torn with the idea of putting the city and county of San Francisco in the energy generating business. I want municipal power, but I don’t want the Pollyanna business of just taking over PG&E. That’s a failed concept. I’d like the concept that Los Angeles has. I’d like the ability to do long- range contracting that Los Angeles has.

SPENCER MICHELS: Given the current high prices for energy, some critics say it is too late to expand an idea– public power– that had its high tide of growth during the progressive era. But Dave Freeman says it may be necessary.

S. DAVID FREEMAN: I think it’s not only practical; it may be necessary. The truth of the matter is we have a federal government that doesn’t seem to have the will power to regulate the wholesale rates of either gas or electricity. We have plenty of power and stable rates, and the reason we have some surplus is that we made investments.

SPENCER MICHELS: The investments DWP has made in power plants means that Los Angeles’ biggest problem right now is deciding how much to charge for the excess power it is selling to the state.

S. DAVID FREEMAN: Listen, I’m being accused of not charging enough, and accused of charging too much. I must be doing the right thing.

SPENCER MICHELS: What are you charging in terms of the market?

S. DAVID FREEMAN: Well, we provide the electricity depending on the hour of the day on the basis of our costs and a reasonable margin to cover all of our overheads and investments that we’ve made, and the fact that the ratepayers of Los Angeles deserve something.

SPENCER MICHELS: And so Dave Freeman is riding high, as the state moves in his direction, debating public ownership or operation of power plants and transmission lines. Officials in other cities wonder if he’s a model to follow, as they scramble to keep the lights on.