Florida shrugs off California-blackout scenario

Sun Sentinel

By Joan Gralla, Reuters, Posted May 7 2001, 10:55 AM EDT

NEW YORK -- Florida is confident it will not face next year the rolling power blackouts that have bedeviled California, but one analyst who foresaw trouble for the West Coast says the same problems may lie ahead for the Gold Coast.

California's self-imposed black eye with deregulation has left a number of states, from Wisconsin to Florida, disinclined to go ahead with similar plans.

That is especially true in the Southeast, where states have less reason to deregulate because their power costs are fairly low.

Florida residents are not expected to experience soaring power prices this summer when the thermometer rises since power companies say they have enough supply to meet customer needs.

But whether Floridians run short of power next year might be decided by factors beyond the state's control: how hot the summer is, whether utilities accurately predict demand growth, and whether they can add new power as fast as they project, analyst Mark Bernstein recently told Reuters.

``Two-and-a-half years ago we said California could face a problem. It wasn't a prediction, it was one of our scenarios,'' said the policy analyst with the Santa Monica, California-based think tank RAND.

But California ran into some tough luck, including a drought that dried up hydropower. ``For California to have the problem it had, everything had to go wrong,'' Bernstein said.

California's crisis stems from a flawed 1996 deregulation plan that allowed wholesale energy prices to soar but capped retail rates. The result has been rolling blackouts, soaring prices and the bankruptcy of the state's biggest utility.

Bernstein sees an eerie similarity between what California experts said two years ago and what Florida analysts now say. ''What they're saying in Florida is the same thing they said in California a couple of years ago. We're not predicting problems in Florida, but if you look at the direction they're going in they could have the same problems as California.''

Tom Ballinger, an energy supervisor with the Division of Safety and Electricity Reliability for Florida's Public Service Commission, said he was confident the state could meet demand.

For 2002, for example, the peninsula area, which accounts for some 90 percent of Florida demand, has a 19 percent reserve margin. That will climb to 26 percent by 2005 before drifting back down to 23-25 percent in the years ahead.

``The peninsula in times past has gotten by with a 15 percent reserve margin,'' Bernstein pointed out.

DEREGULATION LOOKS LESS DESIRABLE

Back in 1995, Wisconsin was tracking California on the path to electricity deregulation, although it planned a slower approach. But the process ground to a halt after California's problems singed its reputation, economy and living standards.

``When California occurred, it froze everybody,'' said State Rep. Tim Hoven, a Republican from Port Washington and chairman of the Wisconsin Legislature utilities oversight committee. He said the state now was focusing more on reliability, adding, ''We don't want to duplicate what they did in California.''

In an interim report, a Florida study group recommended creating a competitive wholesale market.

That would not be done by requiring utilities to divest themselves of generators, as New York State has done, for example; Florida utilities would transfer power sources to an affiliate or third party, said Billy Stiles, executive director of the Florida Energy 2020 Study Commission.

Once the generators were transferred, the utilities would have long-term contracts with their old units -- unlike California, whose utilities could buy only on the spot market. The amount of power Florida utilities contracted for would decline over time, opening the market up to merchant power plants, Stiles explained.

``Once the transition is over ... they have the ability to buy (power) from anybody selling in the market, including their own affiliate or merchant,'' he said.

Florida's deregulation proposal stalled partly because of concerns that consumers might not get repaid for the hugely expensive power generators they helped pay for in the form of higher electricity rates.

The study group proposed transferring power plants at their book value: how much the plant is listed at on the utility's balance sheet. But some critics charged the plants were worth more than their book value, and after they were transferred they eventually might be sold to other independent power producers.

``There was a belief that the gain on the sale of plants will escape recognition of the regulator ... that the customers will be deprived of that gain,'' Stiles said.

He did not agree that power plants necessarily would fetch more than their book values. Still, he added, ``some mechanisms may need to be devised to recognize that gain.''

FLORIDA SEES POWER SUPPLY AS SATISFACTORY Among the concerns Bernstein raised about Florida's plans were questions about whether its utilities might experience delays in building new power sources.

``If those plans actually emerge on time, maybe they'll be OK, but years of experience on things like this (shows) things get delayed,'' the RAND analyst said.

Ballinger, the Florida Public Service Commission expert, recognized that as a risk, but only over the longer term. He said he was confident the utilities' demand projections, on which the state relies, were solid.

``They're looking at it all the time,'' he said, explaining that utilities routinely analyzed population growth, customer accounts, the economy and other factors.

Bernstein also raised the possibility Florida's weather might turn aberrant, with a warmer winter than usual, for example, which could raise demand for cooling. Balllinger said the state's assumptions -- compiled from data provided by its utilities -- were based on normal temperatures.

Although parts of the Northeast such as New York have gone ahead with at least partial deregulation, they had a fairly strong incentive to do so.

New York's retail rates ran around 14.2 cents per kilowatt hour, according to the Energy Information Administration. In contrast, Floridians paid only about 8 cents, and such low rates were the norm for most states in the Southeast, giving them less incentive to deregulate.

``I don't think you're going to see deregulation in the South anytime soon,'' said John Sell, a spokesman for Southern Company, which owns power providers in Georgia, the Florida Panhandle, Alabama and Mississippi. Copyright © 2001, South Florida Sun-Sentinel

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