Friday December 15 1:03 PM ET Justice Dept Asked to Probe Power Crisis

WASHINGTON (Reuters) - U.S. Attorney General Janet Reno (news - web sites) has been asked to investigate whether possible collusion and other illegal activities among power generators are behind the huge jump in California's electricity and natural gas prices.

``We are concerned that market power is being abused by generators in the electricity market to inflate prices and gouge consumers,'' California Democratic U.S. Sen. Barbara Boxer and California State Senate President Pro Tempore John Burton said in a letter to Reno late on Thursday.

``We request that the Department of Justice investigate potential collusion and any other unlawful acts by generators in the electricity market,'' they added.

They noted in the letter that one-fourth of the state's generating plants -- representing 11,000 megawatts of power -- were shut down last weekend, allegedly for repairs or routine maintenance, when California citizens faced rolling blackouts.

``Some have suggested that one reason for plant shutdowns is that in some cases companies are selling natural gas they would otherwise use to operate their plants at exorbitant prices on the natural gas market,'' they said.

If true, Boxer and Burton said it would explain some of the electricity shortage problems and raise concern about irregular activity in the natural gas market.

In a related action, they sent letters to power company executives asking them to explain why their firms shut down generators while California faced power shortages.

Wholesale electricity prices in the state have soared as high as $1,400 per megawatt hour.

Boxer and Burton admitted time is running out for Reno to take action since a new attorney general will take the helm of the Justice Department (news - web sites) when Republican George W. Bush (news - web sites) assumes the presidency in late January.

``However, this crisis in upon us now,'' they said. ``I hope you will take immediate steps to address this matter, thereby setting a strong example of leadership for the new attorney general to follow.''

-- Cave Man (caves@are.us), December 15, 2000

Answers

The power crisis is a conspiracy by the powers that be to drive me back into my cave!

http://dailynews.yahoo.com/h/nm/20001215/bs/energy_california _dc_1.html

-- Cave Man (caves@are.us), December 15, 2000.

Published Friday, December 15, 2000

Big guns aimed at power crisis

Lawmakers want to know if suppliers have conspired to drive up costs; a federal agency acts today on a call to cap wholesale electric prices

By Andrew LaMar TIMES STAFF WRITER

SACRAMENTO -- California lawmakers turned up the heat on energy companies Thursday by asking U.S. Attorney General Janet Reno to investigate the recent price spikes in natural gas and electricity to determine if the companies illegally colluded to increase profits.

In addition, U.S. Energy Secretary Bill Richardson signed an emergency order forcing energy companies to supply California with electricity if a shortage looms over the next seven days.

The moves came as the Golden State endured its 31st day since May under a Stage 2 alert, a warning issued when the state's electricity reserves fall below 5 percent, and as state officials anxiously awaited action by federal regulators.

Gov. Gray Davis praised Richardson's quick response to Wednesday's crisis, when state energy officials came within minutes of shutting off power to 1 million homes after energy producers demanded payments the utility companies couldn't guarantee.

"These generators have acted contrary to the public interest and caused great harm to Californians, our economy and our financial institutions," Davis said. "Their conduct has been nothing less than outrageous."

In a related action, U.S. Sen. Barbara Boxer and state Senate leader John Burton, both Bay Area Democrats, asked for a federal inquiry and sent letters to power company executives demanding an explanation for why an unusually high number of power plants are out of service for unscheduled maintenance.

Thursday's developments preceded final action from the Federal Energy Regulatory Commission, scheduled for today, on whether wholesale electricity prices should be capped or other measures taken to fix what is widely believed to be a broken experiment in the deregulation of the electric utility industry.

Sen. Dianne Feinstein and Davis said they hope the agency will enact two proposals they suggested Wednesday: a cap on wholesale electricity prices throughout the western region, and expanded use of long-term contracts between energy producers and suppliers.

Feinstein and Davis said they'd pursue other avenues, such as federal legislation, to get their plans implemented if FERC fails to act.

Federal regulators "continue to hold all the cards, and we'll see if they're willing to deal with the situation for both the short- and long-term in a positive manner," said Steve Maviglio, the governor's spokesman.

Howard Gantman, a spokesman for Feinstein, said it was too early to discuss what could be part of a Feinstein bill to stabilize the electricity markets.

In assessing the situation, Feinstein said: "We strongly urge a wholesale regional cap. Absent that, there is no way to prevent the incredible volatility from bankrupting California's three major investor-owned utilities and creating havoc for electricity consumers up and down the state."

What the FERC plans to do today, though, is a closely held secret. Commission Chairman James Hoecker said Wednesday the agency will take strong action. The exploding prices and California's two near misses on blackouts appeared to catch the commission off guard.

"This situation is so unpredictable and volatile it's almost changing, literally, hour by hour," said Larry Foster, the editorial director for Inside FERC, a publication that follows the regulatory agency.

"I do not know what the commission's going to do," Foster said. "I think it's clear the sense of urgency is very strong. The question is what do you translate that into."

California's electric grid hummed along Thursday, with usage topping out near 34,000 megawatts, thanks to electricity imports from the Bonneville Power Administration and other Northwest companies, voluntary cutbacks in usage by several agencies and the threat of federal intervention.

But while the man in charge of the state power grid, Kellan Fluckiger, praised the rapid assistance state authorities received and the improvement of supplies, he said the situation will remain an hour-to-hour, day-to-day problem until more power plants come back online and, ultimately, more are built.

When asked if the supply crisis is only temporary, Fluckiger replied: "If temporary is a couple of years, yes, this is a temporary crisis."

Fluckiger expects the strain on supplies to let up over the Christmas and New Year's holidays as many people will take time off from work, but he said colder temperatures could easily complicate matters and bring the renewed threat of rolling blackouts.

Meanwhile, Burton and Boxer trained their attention on a problem that has vexed state officials in recent weeks. They said an unprecedented number of in-state power plants -- facilities that generate 11,000 megawatts of power, about one-quarter of the state's production -- sat idle as California faced a supply crunch and watched prices skyrocket.

About half the power plants down had been scheduled for maintenance. Officials, however, are at a loss to explain why the others are not running.

"These 'unscheduled outages' have contributed to wholesale prices in ... markets which are more than 10 times what they were at this time last year," Burton and Boxer wrote in letters to energy executives. "While constrained supply surely provides handsome profits to generators and marketers, its price implications erode hope of ratepayer relief and threaten the financial integrity of California's investor-owned utilities."

Since last summer, energy companies have scoffed at the accusation that they are intentionally and illegally driving up prices. And when state investigators descended on their plants last week, some officials complained the state had no right to do it in a deregulated market. Many said they cooperated anyway.

Fluckiger said the high number of plants out of service is no mystery. He said energy companies worked their plants especially hard during the summer shortage and now they require more maintenance than usual. He compared the plants to cars that are driven much farther than normal and therefore need more frequent oil changes.

http://www.contracostatimes.com/news/topstory/ferc_20001215.htm

-- Cave Man (caves@are.us), December 15, 2000.

California governor urged to seize beleaguered electric utilities

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=004F3z

-- (also@see.this), December 15, 2000.

http://ogj.pennnet.com/Content/cd_anchor_printscreen/1,1242,OGJ_7_NEWS _DISPLAY_87593_1_7,00.html

Online Story (Dec 15, 2000)

Electric Power

FERC order shifts California away from spot market

Kate Thomas

OGJ Online

The bulk of California electricity transactions would be shifted into the forward markets from the spot market, under a series of reforms the Federal Energy Regulatory Commission (FERC) adopted Friday to correct flaws in the state's wholesale power market. The order is intended to help guide the California market "toward swift self-correction," Chairman James Hoecker said during the Friday afternoon meeting, and he noted action by the California Public Utilities Commission (PUC) will be "critical" to restoring the health of the California market. The major points of the order, first outlined at a Nov. 1 hearing, include: * Southern California Edison Co., a unit of Edison International, and Pacific Gas and Electric Co., a unit of PG&E Corp., would be able to utilize directly the 25,000 Mw of generation they still own or control. As of Dec. 15, the generation which the state had required to be sold at wholesale into the California Power Exchange may be sold directly at retail by the investor-owned utilities (IOU), subject to California regulators. If the PUC so chooses, the utilities can return to selling the electricity under cost-of-service regulations. * California investor-owned utilities will no longer have to schedule all power purchases through the California Power Exchange (PX) as of April 30, 2001. The order releases 40,000 Mw from mandatory exposure to the spot market and allows IOUs to engage in bilateral contracts of 2 years or more. * The order calls for a $74/Mw-hr benchmark price for bilateral contracts. The commission will use the benchmark price to assess complaints regarding "justness and reasonableness" of long-term contract prices. * Buyers must preschedule at least 95% of their load with the California Independent System Operator (ISO) or be subject to penalties. Under the existing market structure, the ISO is forced into buying 4,000-5,000 Mw-hr of power at the last minute, helping to drive up prices. * By Jan. 29, 2001, the so-called stakeholder board of the ISO must cede control to ISO management, although board members may serve in an advisory capacity until April 27, 2001. FERC said it will work with California authorities in establishing guidelines for future board membership. * The order calls for a $150/Mw-hr "break point" bid price effective until April 30, 2001. Bids above $150/Mw-hr will be permitted, but they will not be used to set the market clearing price. While bids above $150/Mw-hr will be subject to FERC scrutiny, if a seller doesn't hear from the agency for 60 days, he is no longer subject to a refund order. The preliminary order issued Nov. 1 did not contain review limitation, generating widespread alarm among independent power plant owners. * FERC called for a technical conference to establish new operating rules for the ISO, including introducing transactions such as locational marginal pricing. Commissioner William Massey said he would like the new rules to "look like PJM's." As FERC commissioners noted, the order does not address the question of retroactive refunds to customers for high prices this summer as advocated by Gov. Gray Davis, some California utilities, and consumer organizations nor does it call for a cap on electricity prices throughout the western US as proposed by a number of California politicians. Addressing the question of regional price caps, Hoecker pointed out, FERC has no authority over the Bonneville Power Administration or other public entities in the Pacific Northwest. He noted there is no spot market outside California to cap. Such a proposal could interfere with bilateral contracts, he said. While the order found no specific instances of the exercise of market power, Massey contended such abuses exist and said he continues to be disappointed with the findings. "I would have preferred to open an investigation into the entire western interconnection," he said. Massey said he also would have preferred a hard cap on prices rather than the so-called soft price adopted by the commission.

-- (in@energy.news), December 15, 2000.

Reposted from John Daly's site, and also open for discussion at Global Warming.

What Happens When You Run Out of Emissions Credits? (16 Dec 2000)

The `Competitive Enterprise Institute' reports in their latest economic report that California electricity shortages became much worse this week. High demand and cold weather combined with supply problems to threaten the state's power grid with massive blackouts. For over a decade, environmentalists have persuaded regulators to prevent the construction of any large power plants.

The problem has been made more severe by the fact that up to one third of the state's generating capacity has been shut down in recent days. Not all of these shutdowns are due to breakdowns or needed maintenance. Some plants were forced to shut down because they ran out of state `emissions credits'.

A December 9 article in the Washington Post noted that, "About 17 power generation plants - which together produce about 2,500 megawatts of electricity, enough to power 2.5 million homes - were idle because they had reached their pollution limits."

The Oakland Tribune (December 8, 2000), explained that, "The units not operating Thursday were under repair or had exhausted their annual allotment for emissions under air pollution standards, imposed on industries of all types by regional air quality management boards, according to government and industry officials."

Once this news became public, regulators quickly declared an emergency' and allowed the closed utilities to resume production. The next day the Tribune (December 9, 2000) reported, "More than half the electricity generation plants shut down because they reached annual air pollution limits were back in operation... easing the unexpected pre-winter supply crises."

As expected, environmental groups decried the hasty arrangements as a sacrifice of environmental protections. Companies still holding emissions credits may also complain that the value of those credits have been reduced by this action.

If this is the result of imposing an emission credits regime in only one U.S. state, the problems which would arise from a similar regime operated internationally would be magnified a thousand-fold. The California experience will weigh heavily on the minds of Bush administration negotiators when the next climate conference convenes, expected to be in Bonn, Germany during the middle of next year.

-- Malcolm Taylor (taylorm@es.co.nz), December 17, 2000.