California Facing Energy Price Hike

by JENNIFER COLEMAN Associated Press Writer

SACRAMENTO, Calif. (AP) -- Peak wholesale electricity prices this summer for California could be double or more those of last summer, when soaring costs drove three utilities to the brink of financial ruin, an economist warns.

It is the first time anyone has put firm numbers into a forecast for this summer.

A number of factors are at play: A drought-induced reduction of hydroelectric supplies in the Pacific Northwest, a predicted hotter-than-average summer, and competition from other states.

These factors, analysts say, will combine to drive up the cost of electricity on the spot market, where the state buys about one-third of the power for two cash-strapped utilities.

That figure will hit $1 per kilowatt hour at peak times and maybe $2 this summer, said Peter Navarro, an economist at the University of California, Irvine.

Last summer, prices during the highest price peak hours averaged 86 cents per kilowatt hour.

With consumer rates capped at about a dime per kilowatt hour, that leaves a growing gap the state will have to fill with a dwindling power allowance.

To cover the difference, the state could issue additional bonds or raise rates, but either option means ratepayers will have to pay eventually.

Navarro, who collaborated with the Utility Consumers' Action Network for a report on summer power forecasts, calculated this summer's peak prices by looking at prices from last summer, those on the recent spot market and electricity-supply limits this year.

Since January, the state has authorized $5.7 billion to buy power for customers of Pacific Gas and Electric Co. and Southern California Edison. The two utilities' credit was cut off after the soaring wholesale costs and the cap on consumer rates put them nearly $14 billion in debt. A third utility, San Deigo Gas and Electric Co., has also incurred debts, but is in better financial shape.

The state will be repaid by $10 billion in bonds expected to be issued in May. PG&E and Edison customers will pay off the bonds.

Officials had expected the $10 billion to last until September, if the state spent less than 25 cents per kilowatt hour, state Treasurer Phil Angelides said. But the state has already paid more than that, averaging 29 cents in March, according to figures from the Department of Water Resources.

Navarro said prices will rise even more when demand rises by about 50 percent during the summer.

And on the futures market, power bought last week for delivery in June, July and August cost from 48 cents per kilowatt hour from the Northwest to as high as 68 cents per kilowatt hour from Arizona.

The Western Systems Coordinating Council, which oversees grid operations in the West, says California's own generation resources are not expected to meet projected peak demands and reserve requirements.

The council and the California Independent System Operator, which runs the state's power grid, estimate the state could fall up to 3,500 megawatts short during peak hours. That's enough power for roughly 2.6 million households.

As a result, managers of the state's power grid will have to depend on imports, but a drought in the Northwest may make that hard to find. In fact, Northwest utilities themselves may have to import power, in competition with California, said Ed Mosely, spokesman for the Bonneville Power Administration.

High power prices have stung all Western states, said Jesus Arredondo, spokesman for the Power Exchange, the group that formerly ran the state's power trading market but has filed bankruptcy.

Generators will lean toward selling to utilities in states without California's financial problems, Arredondo said.

Despite speeding up the permitting and construction of power plants, Gov. Gray Davis appears short of his goal of having 5,000 new megawatts available by summer. The California Energy Commission now estimates only 3,000 megawatts of power from new plants will be on line by July.

-- Anonymous, April 22, 2001

Answers

Wednesday April 18, 8:49 pm Eastern Time

Calif. utility rescue plan seen in severe trouble

By Nigel Hunt

LOS ANGELES, April 18 (Reuters) - California Gov. Gray Davis' billion dollar plan to save utility Southern California Edison (SCE) from bankruptcy is in deep trouble and could be rejected by legislators in what would be a humiliating setback for the governor, legislative and other sources said on Wednesday.

Such a defeat could trigger a filing by SCE, the state's second largest utility, for Chapter 11 bankruptcy protection. The largest utility, Pacific Gas & Electric, filed for Chapter 11 bankruptcy protection on April 6.

``I find it hard to believe ratepayers and taxpayers could be any worse off in a bankruptcy setting than they would be under the (Davis) SCE proposal,'' said Debra Bowen, chairwoman of the State Senate's Energy, Utilities & Communications Committee.

Legislative sources said the governor was having so much trouble gathering support for his plan that he could not find anyone to sponsor a bill. One Assembly official called the SCE bailout plan ``the most unpopular piece of legislation in years.''

``As far as we can tell this is dead on arrival. Davis can't find a legislator who is willing to associate his name with this obscene bailout,'' said Doug Heller of the Foundation for Taxpayer and Consumer Rights

Davis and the Edison International (NYSE:EIX - news) unit SCE announced a complex deal on April 9 intended to save the utility from bankruptcy. The so-called Memorandum of Understanding (MOU) included the state buying SCE's transmission assets for $2.76 billion. It also allowed an increase in rates to let the utility eventually recover billions of dollars it has spent buying power that it has so far been unable to collect.

Davis met Senate Democrats on Wednesday to gain support. Davis spokesman Steve Maviglio said the governor was told the senators would seek improvements. ``If the improvements are not deal breakers then the governor will support them,'' Maviglio said.

One Democrat source said some lawmakers believed the Davis proposal was ``dead on arrival'' while others wanted to make substantial ``improvements'' on the deal which would make it acceptable to a majority of members but possibly not to SCE.

``Then if they (SCE) opt for bankruptcy, that is their choice. As it stands Republicans and, I think, a large number of Democrats aren't willing to support the governor's plan,'' the Democratic source said.

One leading Democrat, State Senate President John Burton, has said that if the state does a deal with SCE it should receive a ``hot dog'' (appropriate value) for every dollar it spends. Senate Energy Committee chairwoman Bowen said under that the current deal the state appears to be only receiving a bun.

FINANCIAL DISASTER

The financial woes for the two utilities began in late Spring 2000 as prices for wholesale power skyrocketed, boosted by buoyant demand linked to a strong economy and a decade in which virtually no new power plants had been built.

The price hikes brought rich rewards for power generators but financial disaster for utilities who could not pass those costs on to their customers due to a retail price freeze mandated under the state's power deregulation legislation.

There is widespread anger in California directed at generators who have reaped massive profits selling power at prices which in some cases have risen tenfold in a year.

``The MOU looks great for generators who get ratepayers to cover all of their unjust and unreasonable rates and it looks fantastic for Edison shareholders, who get to pass all of their costs through to ratepayers,'' Bowen said.

``Who doesn't it look great to? The ratepayers who have to spend a minimum -- a minimum -- of $3.5 billion to finance it,'' she said.

Lawmakers have also expressed doubts about the usefulness to the state of owning SCE's transmission assets without also making a deal to buy those of California's other investor owned utilities, PG&E Corp. (NYSE:PCG - news) unit Pacific Gas & Electric and Sempra Energy (NYSE:SRE - news) subsidiary San Diego Gas & Electric.

Pacific Gas & Electric's bankruptcy filing came after talks with Davis on selling the state their transmission assets stalled.

``Questions need to be asked during the review process on regarding the transmission purchase. Does it make sense to own only one leg of a three legged stool?'' said Dave Sebeck, a spokesman for Sen. Burton.

Democrats have majorities in both the State Assembly and State Senate. Davis also attempted to court Senate Republicans at a meeting Tuesday but got a cool response.

``Buying the transmission lines is like if your are starving for food and you buy a plate,'' James Fisfis, the press secretary for Assembly Republican leader Dave Cox, said.

-- Anonymous, April 22, 2001