CA:Power is with Long Beach in crisis

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Power is with L.B. in crisis By Will Shuck Staff writer LONG BEACH - Long Beach city officials feel a dodged-the-bullet sensation when they read about San Diego's electric woes and wonder: What if Long Beach had managed to buy out Southern California Edison's local power delivery system earlier this year and gone into the electricity business?

Just half a year ago, City Manager Henry Taboada was threatening to exercise the city's right to buy up the poles, wires and transformers that Edison uses to carry electricity throughout Long Beach.

"It could have been a nightmare," Taboada says, now that wholesale rates for power have soared and supplies have been sapped by hot summer days.

Faced with sharply higher power costs, the City Council would have been loath to double or triple customers' electric rates in the span of a month or two, Taboada says.

That's what a utility company did in San Diego when the state lifted a rate freeze and left the region at the mercy of the wholesale energy market.

"The problem would have been laid at our doorstep," Taboada says. "We would probably have been gearing up for a formidable assault from consumers who perceived this as a Long Beach problem."

It's actually a California problem, but Long Beach, as an electric provider, would have been, as Taboada puts it, the messenger.

That message is still out there, waiting to arrive, from whoever delivers it.

Long Beach officials may breathe a sigh of relief that San Diego's plight was not visited upon them. But lawmakers are uncertain of a long-term fix to the state's emerging energy crisis, and the specter of skyrocketing electric bills remains a worrisome vision of next summer and the summers after that.

The Long Beach region was threatened with power outages several times this summer. City Hall and other agencies and businesses went without air conditioning or computers on the hottest days.

Gloomy forecast "Next summer? Assuming that it's a similar summer, yeah, it's going to be worse," says Bill Kerby, an economics professor at California State University at Sacramento.

Kerby, who has studied this summer's energy curve, says there's more demand at existing prices than can be met.

The dream behind deregulation, that it would encourage competition and lower prices, emerged instead as a supply-side bonanza that hit San Diego consumers hard in the pocketbook and forced some merchants out of business.

San Diego was the first city in the state to feel the full effects of California's newly deregulated energy market. Long Beach and the rest of Southern California will not likely know the total effect until 2002, but the hidden costs consumers will bear already are mounting into the billions.

State lawmakers, who unleashed deregulation in 1996, watched anxiously as San Diego Gas & Electric (SDG&E) issued bills this summer that doubled, then raised again, the price of a month's worth of power.

Under the state's deregulation plan, large utilities such as SDG&E and Southern California Edison were forced to divest themselves of much of their generating plants, selling them to independent companies that, the theory went, were supposed to compete with each other to sell power at lower prices.

During the sell-off period, prices were fixed and consumers were billed for part of the cost of utilities' past investment in nuclear and other unprofitable power. The price freeze was to be lifted when those costs had been absorbed.

Prices jump SDG&E was the first company released from the freeze, and the result was economically and politically frightening. The new independent suppliers were charging more, not less, for power. And SDG&E moved to pass on the cost to consumers.

This summer, as the end of the two-year legislative session drew near, state lawmakers huddled late into the night and devised a controversial plan to cap San Diego's rates and create a fast track to encourage construction of new generators.

Even with a faster approval process, it will be years before the additional generators come on-line. Meanwhile, San Diegans' reprieve is only temporary, and the rate cap only borrows against the future.

It works like this: The state sets a maximum amount that SDG&E can charge for electricity, an amount that often is less than the utility pays to buy it. The difference ultimately must be paid back to SDG&E, almost certainly by the consumers.

That's the painful scenario Long Beach officials would have faced had the city acquired Edison's local delivery system. It may be possible for a giant utility such as SDG&E to wait for repayment of a billion dollars, but if Long Beach had had to float such a loan, it could have been a disaster, Taboada says.

Then, chuckling at the city's hindsight-enhanced fortunes, he adds, "I'm pleased that we have the relationship we now have with Edison."

L.B. makes a deal The city abandoned its threat to buy Edison's local system early this year in exchange for Edison's agreement to pay Long Beach millions in cash, taxes and other benefits. Those payments help balance the city's budget.

Even if Long Beach had become an energy provider, it would not be in the enviable position of Los Angeles' Department of Water and Power, which emerged unscathed by deregulation because it was exempt from laws that force privately owned utilities to sell off their power plants.

While the private utilities are now at the mercy of a new breed of power-generating companies, the DWP still makes all its own power - generating so much more than it needs, in fact, that it sells the surplus for a tidy profit.

Long Beach's threatened takeover would not have involved generators, just wires. So it would have been vulnerable to the market swings now faced by private distributors.

In either case, of course, the ultimate payers are the consumers: the residents and businesses that use the electricity. For the moment, they are getting their power at a state-regulated price.

Southern California Edison says it already has run up a billion-dollar deficit by buying electricity at 16 cents a kilowatt hour and selling it for 10.

"When you purchase at 16 and sell at 10, that cuts into your ability to operate your core business," says Gary Schoonyan, director of Edison's San Francisco office.

"Our position is that those were costs that we incurred and that we should have a method of recovering," he says.

Consumers' turn Schoonyan says Edison will leave it to the Public Utilities Commission to decide how the company will get its money back. Observers say consumers are likely to take the hit.

Last week, executives from the Northern California utility Pacific Gas & Electric asked state regulators to let them pass along at least $2 billion in costs to customers.

"That really should not be coming from the ratepayer," says Doug Heller of the Foundation for Taxpayer and Consumer Rights. He says utility companies should not expect to be protected from every potential loss during the shift to a deregulated market.

"Edison and Pacific Gas & Electric, like spoiled children, are going back to the deregulation table and asking for more," Heller says. "And the governor and the Legislature should stand up to them."

State Sen. Debra Bowen, D-Redondo Beach, says the issue is complex but some answers are obvious.

"I think if you look at the baseline of supply, the age of our fleet for power plants and the increased explosion of demand, it's hard to be surprised the price is going up," she says.

Rapid population growth in other western states, such as Nevada and Arizona, has put increased demand on the same grid that provides power to California. So the total amount of electricity available to California is somewhat depleted, says Edison's Schoonyan.

New gougers? But he and others suggest there's another more aggravating reason for higher costs: deliberate gouging by the companies that bought the generating systems from California's utilities.

"Take a look at how generation is being operated," Schoonyan says. "Last summer a lot of the generation was still being operated by the utilities, and this summer a lot of it is being operated by outside parties."

Schoonyan says he wonders whether generators are withholding power from the market in order to get a high price when demand peaks on hot days.

"These operators are threatening, and they have threatened since last June, to sell (power) out of state to the detriment of California," he says. "This raises the whole question of withholding supply."

Schoonyan says the new owners of former utility company power plants are sophisticated people who understand how things work, and who may say, " 'Hey, let's take this unit down for maintenance.' And you wonder, how much was off-line that could have been on-line?"

Gov. Gray Davis recently suggested that he wondered the same thing and directed state officials to investigate.

But Bowen, who heads the Senate's utilities committee, says despite the allegations, there has been very little evidence.

She says deregulation is a complicated puzzle with no easy answers. She adds, however, that people can help solve their own problem.

Self-restraint urged "I really think businesses and residents alike should be thinking about reducing their consumption, and people need to think about how energy costs relate to the time of usage," Bowen says.

Anyone can save money on bills, whether energy is expensive or cheap, she says. They can limit consumption during peak hours, using clothes dryers at night, for example, when rates are lower.

"We're not used to thinking of buying electricity the way we think of buying an airline ticket," Bowen says. "Anybody knows you get a cheaper seat when you (take a) flight on Sunday morning rather than when everyone else wants to fly. We're going to have to start thinking of electricity that way."

Chris Garner, the former head of Long Beach Gas & Electric, was once the premier cheerleader for Long Beach's effort to go into the electricity business. He now says he is glad the city does not have to deal with the headaches to come.

But he still envisions Long Beach as at least a bit player in the big energy drama.

Now acting as chief of the city's Public Works Department, Garner has his eye on some natural gas-powered turbine generators that could operate during peak energy hours, giving City Hall and other buildings dependable, affordable electricity.

The turbines cost about $60,000 each, and Garner hopes the city will buy at least two this year - enough to provide City Hall with its entire energy needs.

The engines use clean-burning natural gas, a commodity that Long Beach's own gas department buys wholesale.

"We need a pilot program," Garner says. "We could get into the business of selling these or leasing these to Long Beach businesses. They're quiet, they're environmentally friendly, and it's relatively inexpensive energy."

http://www.ptconnect.com/archive/today/new01.asp



-- Martin Thompson (mthom1927@aol.com), September 11, 2000


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