U.S. Entry Into California Power Crisis Off to Rough Start

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U.S. Entry Into State Power Crisis Off to Rough Start Governor, consumers sought more decisive action from commission David Lazarus, Chronicle Staff Writer

Saturday, December 16, 2000 ©2000 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/12/16/MN141851.DTL

Federal regulators unveiled measures yesterday to address runaway power prices in California. But the moves, which were surprisingly limited in scope, drew a harsh response from state officials and consumer activists who had been expecting more decisive action. "The Federal Energy Regulatory Commission has abdicated its responsibility to the people in the West," said Gov. Gray Davis, who had called on the commission to implement caps on sky-high wholesale power prices.

The commission's main solution for California's energy crisis is for utilities to cut one-on-one deals with power generators, as opposed to purchasing electricity in the central Power Exchange.

This change, the commission said, will help stabilize electricity prices by encouraging utilities to lock in long-term contracts beyond the frenzied bidding of the daily "spot" market.

But reaction to the commission's order, which reflects a further unraveling of efforts to deregulate the state's electricity market, was almost uniformly negative.

"They have chosen to ensure unconscionable profits for the pirate generators and power brokers who are gouging California consumers and businesses," the governor said.

Davis said he will call a special session of the Legislature next week to replace current leaders of the California Independent System Operator, a nonprofit agency that oversees the state's power grid. Federal regulators also called for such a change.

Davis said as well that he will seek authority for state officials to inspect private power plants idled for maintenance and to provide low-interest financing for new power facilities.

"The action today by the Federal Regulatory Commission is unacceptable," said Sen. Dianne Feinstein. "Rome is burning, our utilities are close to bankruptcy, Californians are facing major blackouts, and the commission is fiddling."

For its part, PG&E Corp. said the federal regulators have left California consumers "exposed to price gouging and future electric supply uncertainty."

"The remedies outlined in the order do not go nearly far enough to provide a solution that ensures reliability of the state's electric supply and, equally importantly, provides relief from future price gouging," the company said in a statement.

But James Hoecker, chairman of the federal commission, said in an interview that more extensive measures to re-regulate California's energy market were not warranted.

"We have provided important, immediate help," he said. "I know that those who would have us dictate the price of power in this vast market will complain.

But I believe that these actions will achieve the results everyone seeks."

He added that yesterday's order "is a first step to staunch the bleeding, but there is much rehabilitation ahead."

The commission voted 4 to 0 to implement measures that it said would provide "strong directives to the markets to self-correct." But consumer activists scoffed at this notion.

"The commissioners expressed an awful lot of faith in the market," said Mindy Spatt, a spokeswoman for The Utility Reform Network in San Francisco. "I don't see how anyone can have faith in a market that's driving prices up."

Wholesale electricity prices topped $1,400 per megawatt in recent days, compared with just $45 a year ago. At the same time, chronic shortages have driven officials to declare a series of emergency alerts as power reserves fell to dangerously low levels.

Some power companies refused to sell electricity in California this week because they said they were unsure if the state's cash-strapped utilities could pay their bills.

In response, U.S. Energy Secretary Bill Richardson ordered 70 generators to make their electricity available to the state through next Thursday.

California officials and consumer groups had been hoping that federal officials would take the lead in stabilizing California's power market by imposing firm price caps and greater openness in deal-making.

"The commissioners failed to protect California consumers from the unmitigated disaster of deregulation," said Douglas Heller, assistant organizing director of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

The commission "has essentially thrown the ball back in California's court and has capitulated to the big energy lobby," said Michael Shames, executive director of the Utility Consumers' Action Network in San Diego.

The federal regulators included in their remedies a "soft cap" for power rates of $150 per megawatt. But generators can receive higher amounts if they can demonstrate that a steeper price is necessary.

With natural gas prices now at record highs, critics say the power companies will have no trouble making a case for higher wholesale rates due to the higher cost of running their plants.

The federal regulators directed staff members to meet with the various players in California's electricity market to determine what other steps may be needed down the road to stabilize prices.

However, the governor said that if California wants to overhaul its power system, it likely will have to do so itself.

The commission's "failure to act in the interest of our consumers and businesses literally invites California to act to regain control over the energy market," Davis said.

He said $1 billion of the state's 2001 budget will be set aside for conservation efforts.

E-mail David Lazarus at dlazarus@sfchronicle.com.

-- Martin Thompson (mthom1927@aol.com), December 16, 2000


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