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Thursday August 3 7:08 PM ET

California Power Crisis Escalates As Plant Fails

By Nigel Hunt

LOS ANGELES (Reuters) - California's power emergency escalated on Thursday afternoon as scorching heat held demand near record levels and some industrial and commercial customers lost electricity for the fourth consecutive day.

The escalation was caused by a mechanical failure at a power plant in northern California.

The California Independent System Operator (ISO), which operates most of the state's power grid, ordered that service should be interrupted to certain industrial and commercial customers, declaring a so-called stage two emergency. These customers get power at a discount in return for agreeing to have their service cut when supplies are tight.

Rolling blackouts across the state would be ordered if the ISO were to call a so-called stage three emergency. The ISO barely squeaked by on Tuesday and Wednesday without having to order a stage three emergency.

President Clinton on Thursday ordered federal agencies in California to cut their power use by an estimated five percent to help alleviate the state's power crisis and California Gov. Gray Davis has ordered a probe into possible market manipulation. Davis also vowed to seek to speed up the approval process for desperately needed new power plants.

California blazed the trail for electricity deregulation in the United States. There have, however, been growing calls for it to be halted particularly in San Diego where customers have seen a doubling or even tripling of their bills.

Under the terms of the state's deregulation, customers of Sempra Energy (NYSE:SRE - news) subsidiary San Diego Gas and Electric are the first to be charged market-based prices.

Rates for customers of the state's other two investor-owned utilities, Edison International (NYSE:EIX - news) unit Southern California Edison and PG&E Corp.'s (NYSE:PCG - news) Pacific Gas and Electric are currently frozen.

State regulator the California Public Utilities Commission (CPUC) on Thursday rejected an emergency motion from San Diego-based consumer advocate the Utility Consumers' Action Network (UCAN) calling for a price freeze for customers in the southern Californian city.

The CPUC did, however, agree to investigate the possibility that prices could be frozen at a later date.

On Thursday, James Hoecker, chairman of the Federal Energy Regulatory Commission (FERC) said he still supports the deregulation of the state's power market and will work with California to ease its current electricity problems.

FERC, which regulates electricity transmission across state lines, announced last week that it would investigate electric bulk power markets to determine if they are working efficiently and if there is competition among power suppliers. Agency staff will report their finding on November 1.

The state's power problems are rooted partly in surging demand linked to strong economic growth in the western United States.

California is the home of Silicon Valley, the center of the nation's booming high-technology industry. Economists estimate that power outages would cost companies in that region at least $75 million a day.

There also have been few power plants built during the past 10 years, and although many are now planned, the prolonged approval and construction process means most will not come on line before 2002.

-- Rachel Gibson (rgibson@hotmail.com), August 04, 2000