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Power Crisis in California

November 29, 2001 at 12:00 AM EDT
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SPENCER MICHELS: Even with the nation focused on terrorism, the electricity crisis remains big news in California; the main fight now is over the price of power. Luckily for Californians, the summer did not live up to its advanced billing. 1,000 hours of blackouts had been predicted. By spring, this mammoth dairy plant had already had its power knocked out several times.

ALAN PIERSON, Land O’Lakes Dairy: We see the problem only getting worse as we go into the summer months when the demand for electricity goes higher.

SPENCER MICHELS: In fact, the problem got better. The weather cooperated, Californians cooperated, and power arrived from in and out of state. Governor Gray Davis, fighting for his political future, gave the credit to God.

GOVERNOR GRAY DAVIS, California: Well, we clearly dodged a bullet. God has been good, and it’s been a normal, not a hot summer. We’ve approved six new plants that are online now, and we had wonderful conservation from the people of California.

SPENCER MICHELS: Californians cut their electricity use 14% during peak periods by turning out the lights or using energy- efficient fluorescent bulbs. Also, the economic downturn, aggravated by the September 11 attacks that cut into air travel, contributed to lower demand for energy. And the six new power plants that came online provided 1,400 megawatts of electricity; construction has begun on a dozen more plants, their permits sped though the state bureaucracy. That’s made a big difference, according to Severin Borenstein, director of the University of California’s Energy Institute.

SEVERIN BORENSTEIN, University of California: By next summer, there will be substantially more supply on line. We’re still going to be a bit short next summer, and if people stop conserving entirely, we could run into trouble, but we’re probably going to be okay.

SPENCER MICHELS: Yet the electricity crisis has not ended. Big power users, like Schnitzer Steel of Oakland, are complaining that prices are much too high to keep them competitive. This firm shreds 7,000 old cars a day and sells the scrap steel around the world. The 7,000 horsepower shredder motor draws enough power to light 80,000 homes.

GARY SCHNITZER, Scrap Steel Dealer: We’re paying very high rates, and there’s an indication it might go higher, that the utility company says, “to come out of bankruptcy, we’re going to need even higher rates.” That concerns us greatly.

SPENCER MICHELS: Schnitzer says that his firm and others could leave California because of high rates.

GARY SCHNITZER: The impact on business, on large industry, on large power users, has been tremendous. We’ve had huge, huge increases.

SPENCER MICHELS: But consumer advocate Nettie Hoge of the Utility Reform Network says big firms simply want lower rates.

NETTIE HOGE, Consumer Advocate: Oh, the political pressure is so great. I’ve never seen such a storm. The whole thing that’s going on in Sacramento now is about the big customers wanting cheap power.

SPENCER MICHELS: Many residential users have seen their electricity bills increase as well, as much as 40% if their consumption is high, and those rates won’t come down soon. Last winter and spring, with power in short supply, the state had to pay enormous amounts to secure electricity. The Governor, to avoid paying those exorbitant prices on the daily market, entered into long-term contracts for power at slightly lower rates. But according to Hoge, those contracts mean power bills will stay high.

NETTIE HOGE: What we did is we swept it under the rug, and it’s going to be with us for ten to fifteen years, because we structurally committed to high, sustained prices for ten to 15 years with long-term contracts.

SPENCER MICHELS: California’s Public Utilities Commission recently balked at ratifying those contracts, and may nullify them against the Governor’s wishes. That would make it difficult for the state to sell bonds for power.

GOVERNOR GRAY DAVIS: I think we did the right thing. When we did it, we had no leverage in January and February. We got the power to keep the lights on and we thought we got it at good prices in that context.

SPENCER MICHELS: But if you had no leverage, that would seem to be a terrible time to negotiate.

GOVERNOR GRAY DAVIS: Well, but it was either that, or all the lights would go out starting January 19. Keep in mind these generators, whose greed knows no bounds, charge so much money that charge so much money that PG&E is in bankruptcy.

SPENCER MICHELS: Pacific Gas and Electric, the state’s largest utility, spent so much money buying electricity, it asked for court protection from its creditors. But the bankruptcy has not had much effect on the public so far. Robert Glynn, Jr., is chairman and CEO.

SPENCER MICHELS: To a layman, going into bankruptcy means you’re broke. You would think that would have a major effect. Has it?

ROBERT GLYNN, CEO, PG&E: There are billions of dollars of unpaid bills that are… and creditors who are owed that money that are waiting for our company to exit bankruptcy in order to get paid. So that clearly represents unfinished business that needs to get taken care of.

SPENCER MICHELS: Meanwhile, the state is still trying to get the federal government to order refunds from generators who sold power at high prices.

GOVERNOR GRAY DAVIS: We’ve got to get the federal government to finish the job. They owe us $9 billion in refunds. They’re trying to wiggle out of it.

SPENCER MICHELS: Davis has a new agency to help in stabilizing prices and supplies: The state power authority. Legally, the state could now produce and sell power, but probably won’t. Even consumer groups aren’t pushing for that.

NETTIE HOGE: We weren’t asking for state ownership. We’re asking for investor-owned utilities to be regulated so that an essential commodity could be delivered at a fair and reasonable cost.

SPENCER MICHELS: But legislators voted to deregulate electricity in 1996, an experiment now generally viewed as a disaster. Still, utilities like PG&E don’t want re-regulation.

SPOKESMAN: There will continue to be a strong deregulatory, more market-based and less regulatory-based framework.

SEVERIN BORENSTEIN: In some ways, we’re back to square one with deregulation. We need to now decide what sort of deregulation, if any, we’re going to have in California.

SPENCER MICHELS: The energy crisis may have eased, but it has not gone away. And, in fact, it’s already the main issue in next year’s governor’s race.

JIM LEHRER: This week the California Power Authority decided to hold up 31 proposed energy projects because the power they could produce may not be needed by next summer.