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SPENCER MICHELS: It may not look like it, but the lights could go out, at least temporarily, in California, and the prices for electricity could, and probably will, skyrocket. Several times in the past few weeks, state officials have called energy emergencies, indicating the supply of electricity was at dangerously low levels. Rolling blackouts are threatened, where one neighborhood gets no power for a few hours, and then another neighborhood is blacked out, because there isn’t enough electricity to go around. Southern California Edison threatened to begin rationing electricity over the Christmas weekend. Utilities and consumer groups, at odds on most issues, agree the situation is a disaster.
NETTIE HOGE, Consumer Advocate: It’s a financial tsunami. It has the capability of creating a deep recession for California.
SPOKESMAN: If you look at the potential impacts to California as a whole, to the economy in California or even the economy in the entire West Coast, it can be certainly viewed as a crisis.
SPENCER MICHELS: The crisis stems from the fact that California is not producing enough electricity to meet the demands of a fast- growing state at a time when other states, which sell to California, are using more power as well. Hydroelectric plants are running at full bore, drawing down water levels, which bodes ill for water supplies in the summer, when electricity demand increases. The shortage has been aggravated by the deregulation of electricity, which has unexpectedly reduced the supply. Four years ago, the state legislature told the investor-owned utilities, which were regulated monopolies, to sell off their power plants and stick to the distribution of electricity only. By opening up the generation of power to anyone, deregulation was designed to bring more companies into the electricity producing business, competing with each other, and resulting in more power and lower prices. State Senator Steve Peace was optimistic when he created the plan in 1996.
SEN. STEVE PEACE, Deregulation Author: California consumers can expect at the end of the four- year transition period, to have electric bills that are about half of what they are today.
SPENCER MICHELS: But competition has not developed, and the utilities no longer produce much power. As a result, desperate utilities are buying power, much of it from out of state, on the wholesale market at very high prices. And even then, they can’t get all they need. In San Diego, electricity prices tripled last summer. In most other cities, protected during the transition by a price cap, rates will rise shortly. Pacific Gas & Electric, which serves much of Northern California, says it has borrowed $4.6 billion to buy electricity to meet the demand, but can’t pass those costs on, because of the price freeze. PG&E Spokesman Jon Tremayne argues that the high prices are causing economic disruption.
JON TREMAYNE, Pacific Gas & Electric: We’re paying 25 to 30 cents per kilowatt hour to purchase electricity on the wholesale market, and we’re turning around and selling it to our customers for 5 cents per kilowatt hour. That’s a scenario that can’t go on for any length of time, logically speaking. We’re currently borrowing money from the financial markets to pay our customers’ bills so that we can keep the lights on here in California.
SPENCER MICHELS: PG&E, which serves 13 million Californians, wants to end the price freeze and raise rates. It has gone to the state public utilities commission seeking increases, hinting it will go bankrupt without quick help.
NETTIE HOGE: The utilities are pulling the wool over people’s eyes and talking about this notion of bankruptcy. The parent companies are making astounding profits.
SPENCER MICHELS: Nettie Hoge, executive director of the Utility Reform Network, a consumer group, says on radio talk shows and in interviews that rate increases are not the answer to California’s electricity woes. She says utilities are part of the problem, not the victims. And she says they are actually making money as a result of the crisis, because their parent corporations own power plants.
NETTIE HOGE: PG&E’s parent corporation is making astounding profits, paying dividends, and in addition to that, the utility is making money in this market. They’re selling their own generation and getting these astronomical prices.
SPENCER MICHELS: But at least one Wall Street firm takes the utilities’ complaints at face value, and is warning it could downgrade their credit ratings to junk bond status. Many power producers have been silent on allegations they have exploited the market. But some, like Calpine, which has facilities in and outside California, say prices were fair, considering the circumstances.
JAMES MACIAS, Calpine Energy: The prices were high but they weren’t they weren’t excessive, and this economy can’t sustain those prices. That’s why we need new supplies, new competition to drive down those prices.
SPENCER MICHELS: PG&E would like to see the state force electricity producers to refund some of the money they’ve made. But high prices are only part of the problem. California has had a hard time buying enough electricity. The utilities claim the generators were withholding power from the market. State officials persuaded Secretary of Energy Bill Richardson to order producers to sell electricity to California, and federal agencies to provide emergency power.
BILL RICHARDSON, Energy Secretary: (December 14) I’ve also invoked my emergency authority to make sure the generators send all available power to California and not use excuses that the price isn’t right or they don’t have enough credit. I will not allow the people of California to be subject to blackouts and without lights.
SPENCER MICHELS: The threat of blackouts and the possibility of extremely high prices for electricity, have turned a major economic crisis into a political problem as well. Politicians, especially California’s Governor, have been scrambling to find solutions. But deregulation has progressed to far to easily turn it back, and there doesn’t seem to be a quick fix. California political analysts are writing that Governor Gray Davis’ political future may ride on whether he can solve the electricity problem. The Governor signed a bill to put a cap on San Diego’s rates, but he admits a long-term solution is difficult.
GOV. GRAY DAVIS, California: The challenging and somewhat frustrating problem is that we don’t have all the power or authority necessary to solve the problem. The Federal Deregulation Act took a lot of it away from us. So I can’t solve this problem with the help of the legislature alone. I need the help of the federal government.
SPENCER MICHELS: Davis and others lobbied the Federal Energy Regulatory commission, FERC, to put a cap on wholesale prices and to authorize refunds to San Diego. But FERC commissioners said they wanted to let the market set the prices.
CARL HEBERT, JR., Federal Energy Regulatory Commission: The solution to the suffering is to promote the evolution of truly competitive markets.
SPENCER MICHELS: Meanwhile, in California, where electricity demand is increasing as the weather gets colder, high-level talks between utilities and state officials took place this week over how much of a rate increase consumers will have to pay, and how soon the rate freeze will come off. Consumer groups are furious they were not included, since they believe they have some solutions.
NETTIE HOGE: We have to keep the utilities on the hook, and we have to look at more radical solutions, including public ownership of the transmission system, and central dispatch of power, and much, much more severe restrictions about manipulation of market power and gouging.
SPENCER MICHELS: Consumer groups also are pushing for more conservation of energy and more emphasis on wind, geothermal, and solar power, so-called renewable energy. The crisis was temporarily eased last week by the energy secretary’s order. But this week supplies fell off once again. All sides point to increased power generation as the long- term solution. Only a few power plants are under construction, but applications to build two dozen more are pending.
JON TREMAYNE: California needs more generation, and what we need to do is just get through this transition period, this time in which the market’s broken, it’s out of control. We’re waiting for a new generation to come on line, but over the course of the next two to three years, those power plants will get built, and they will start delivering electricity, and that will help alleviate much of the problem California currently faces.
SPENCER MICHELS: The organization that buys emergency power for California, says that the current crisis could last until 2002, which is when one consumer group intends to offer a ballot initiative to scrap deregulation.
JIM LEHRER: Yesterday, California’s Public Utilities Commission indicated it would order electricity rates increased. The commission will study the utilities’ books and decide on the size of the rate hike on January 4.