Electricity Crisis Puts PG&E in A Cash Bind / Utility is borrowing $1million per hour Source: The San Francisco Chronicle Publication date: 2000-12-12

As California struggled yesterday with an unusual winter power crisis, Pacific Gas and Electric Co. warned that it soon could run out of money to buy electricity for its 4.5 million customers. "The credit situation is getting much tighter," said Greg Pruett, a spokesman for the San Francisco utility. "There will come a time when we won't be able to buy power for people. This is going to happen more sooner than later."

The danger for PG&E is that financial institutions will stop lending the utility money to cover its expenses. Northern California's power undoubtedly would continue to flow, but it is unclear who would pay for it or how.

Meanwhile, the state's energy shortage eased slightly as PG&E's Diablo Canyon nuclear power plant, which had been closed for repairs, returned to operation ahead of schedule.

The, which oversees the power grid, declared a Stage 2 emergency alert late yesterday afternoon when reserves fell below 5 percent of total capacity. Power subsequently was cut to some industrial customers on a voluntary basis.

State officials had warned last week that a Stage 3 alert might be called if as much as a third of California's generating capacity remained down for repairs. A Stage 3 emergency allows utilities to initiate "rolling blackouts" to relieve pressure on the system.

Milder-than-expected weather and the return to service of Diablo Canyon prevented the situation from getting out of control, officials said.

But for PG&E, there is no relief in sight for what the company characterizes as a financial disaster in the making.

UTILITY $4.6 BILLION IN DEBT

As of the end of November, Pruett said, PG&E had racked up about $4.6 billion in charges buying power on the wholesale market -- charges that the utility was unable to pass along to customers because of a rate freeze.

"Every hour that goes by means we're in debt a million dollars more," Pruett said.

Although this may be the case, PG&E's gloom-and-doom stance can be seen as an attempt to prod California regulators into lifting the current rate freeze and allowing the utility to hit customers with billions in unforeseen costs.

Last week, the state Public Utilities Commission ruled that PG&E had not met requirements for lifting the freeze and must continue swallowing extra costs incurred in the volatile wholesale power market.

PG&E'S STOCK PRICE FALLS

This is playing havoc with PG&E's finances. The company's stock fell 7 percent to $21.94 yesterday after several leading brokerages issued pessimistic outlooks for PG&E's profitability.

The utility predicts that it could be as much as $6 billion in the hole by the end of the month.

"This situation cannot go on indefinitely," Pruett said. "The price of retail electricity needs to rise."

Consumer activists expressed sympathy with PG&E's plight but insisted that the utility remains responsible for all expenses incurred as California proceeds with deregulation of the state's power market.

"Consumers should not bail them out for the rate freeze," said Nettie Hoge, executive director of The Utility Reform Network in San Francisco.

"But going forward," she added, "we need to get wholesale prices under control. Otherwise this is a perilous concern for everyone."

Hoge said she hopes PG&E's implicit threat of potential bankruptcy will get the attention of federal regulators.

She said federal regulators will have to impose limits on California's wholesale power rates to prevent the sort of price increases that resulted in higher bills for some over the summer.

Wholesale electricity prices are now 16 times higher on average than in the spring. Prices surged over the summer as the supply of available juice was unable to keep pace with demand. They have remained high ever since.

Wholesale prices jumped yesterday after the ISO lifted a $250-per- megawatt rate limit late Friday to discourage power companies from selling electricity elsewhere.

But the move appeared to have some immediate unintended consequences.

$600 PER MEGAWATT WHOLESALE

The wholesale price of a megawatt hour of electricity on Monday was anywhere between $600 and $800, and an official at the ISO acknowledged the agency did not foresee prices reaching that level.

"We didn't think it would go that high," said Patrick Dorinson, a spokesman for the agency.

In addition, while lifting the cap did encourage more generators to put bids on the market, most of them were in the south. Because the distribution system cannot handle a large volume of electricity moving south to north, where demand is highest, the bids were of limited benefit.

Asked whether the bids managed to drive up the cost of electricity without meaningfully augmenting supply, Dorinson declined to comment.

DAVIS' PREDICTION COMES TRUE

Gov. Gray Davis protested the ISO's decision to the Federal Energy Regulatory Commission on Friday night, saying an end to the rate limit would do more harm than good.

"I suspect that, sadly, his prediction has come true," said Steve Maviglio, a spokesman for the governor.

Last night, the California Power Exchange, which coordinates the state's wholesale power market, asked the federal commissioners to overturn the ISO's decision.

Ending the rate limit, exchange officials said, "threatens to bring dire, irreparable and unintended consequences to the California markets."

About a quarter of California's generating capacity was offline as plants throughout the state remained down for both scheduled and unscheduled maintenance.

The Public Utilities Commission is expected to issue its findings this week after a series of surprise inspections of idled plants last week.

Loretta Lynch, the president of the PUC, said the inspections were merely a form of "information gathering," but she stressed that it was unacceptable for so many plants to be down at the same time. She called for a system to be developed to better schedule maintenance.

Federal regulators are expected to draw up a blueprint for overhauling California's energy market this week.

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-- Martin Thompson (mthom1927@aol.com), December 13, 2000