California Energy pressure builds up

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Posted at 12:03 a.m. PST Friday, Dec. 15, 2000

Energy pressure builds up BY STEVE JOHNSONAND MARK GLADSTONE Mercury News Amid predictions that California's electricity plight will grind on well into 2002, pressure is growing to reassert government control over the state's deregulated and highly dysfunctional energy markets.

Proposals at the state level include having California take control of power plants, perhaps even the high-voltage transmission lines owned by Pacific Gas & Electric Co. and the state's other major utility companies.

At the federal level, regulators will meet today to talk about what they can do to help California. Meanwhile, pressure is mounting on the federal government to join several state investigations into irregularities in the power market.

But despite the various appeals being made, many people are skeptical about just how much regulating either level of government is likely to do.

For its part, the federal government has resisted most of California's calls for action so far, and that's not likely to change now that the White House will be run by Republicans who take a dim view of governmental meddling with markets.

So the job could fall to California authorities.

``I certainly hope the new administration looks at the facts of what's going on in California'' and decides to assist the state, said California Public Utilities Commission President Loretta Lynch. But if Washington won't help, the state will have to act itself, she said, because ``we just cannot wait around forever.''

But in the state Capitol, lawmakers' options are limited by how radically the structure of the electricity market has changed since the 1996 deregulation law -- and how hard it would be to undo those changes.

Since that law was passed, utilities have sold off many of their power plants and now must buy much of their power on the open market. Simultaneously, few new power plants have been built in recent years, but the state's demand for power has increased.

As a result, electricity supplies have dwindled -- on some days to critically low levels -- and prices have soared.

While power supplies Thursday dipped precariously low once again, triggering a Stage 2 emergency alert, the situation wasn't as dire as it had been on Wednesday, when officials said they came excruciatingly close to ordering statewide blackouts.

Nonetheless, California's on-again, off-again flirtation with electrical catastrophe isn't going to end any time soon, according to Kellan Fluckiger, chief operating officer for the Independent System Operator, which oversees most of the state's flow of power.

``I believe we will be in this kind of a crunch probably through the summer of 2002,'' Fluckiger said. ``We have a serious situation that is ongoing.''

State political leaders agree. U.S. Sen. Barbara Boxer, D-California, and state Senate President Pro Tem John Burton on Thursday asked for U.S. Attorney General Janet Reno's help in investigating ``possible collusion and other illegal activities'' by power suppliers.

Two state agencies and state Attorney General Bill Lockyer already are investigating whether power firms gouged consumers. But Burton and Boxer said that, ``by bringing in the U.S. Department of Justice, we hope to enhance the state investigation.''

The two lawmakers also said they were sending questionnaires to power-company executives, asking those with plants down for maintenance to explain those problems, which have contributed to the energy emergencies.

Federal intervention

Meanwhile, U.S. Energy Secretary Bill Richardson issued an emergency order Thursday that formalized his Wednesday decision to require out-of-state power suppliers to make electricity available to the state when it faces critical shortages. The order is effective for one week.

State officials welcomed that move, but they continued to call for help from the Federal Energy Regulatory Commission, which is meeting in Washington today.

Among other things, they have demanded that it order power firms to refund their multibillion-dollar profits to consumers.

They also want the agency to hold the line on wholesale power prices throughout the West, a point emphasized Thursday by Sen. Dianne Feinstein, D-Calif. Without such a regional price cap, she said, ``there's no way to prevent the incredible volatility from bankrupting California's three major investor-owned utilities and creating havoc for electrical customers up and down the state.''

But because the federal agency has been reluctant to take such drastic steps in the past, many people want state officials to take matters into their own hands. Lawmakers appear to be listening.

The state Assembly leadership is considering holding oversight hearings to figure out how California got into its energy predicament.

One bill that is likely to get introduced in the next few days by Burton would provide for better coordination among state agencies in managing power-plant repairs.

Taking back control

It's not clear how much control government authorities might attempt to assume over the state's electricity markets, which the Legislature deregulated in 1996. But these are among the options under consideration:

Setting up some new government agency to buy and operate power plants and high-voltage lines owned by utilities.

Requiring PG&E and the two other main utilities to buy back their plants or build new ones, under strict government oversight.

Providing government financing to make heavily polluting power plants more environmentally safe so they can run more often, especially during critical electricity shortages.

Re-regulating parts of the energy market, while leaving other parts open to competition.

Having taxpayers provide financial assistance to utilities, to help the companies pay off their multibillion-dollar electricity debts or at least to assist them in buying power if their mounting red ink makes it hard for them to borrow money to buy power. This last idea has been a subject of considerable speculation this week in light of the growing fear that some utilities, including PG&E, could go bankrupt. That's a big concern to consumer advocates, such as Michael Shames, executive director of Utility Consumers' Action Network in San Diego.

Some people don't believe utilities are in bad financial shape. But utilities may be able to use the threat of bankruptcy to force the state to cover their costs and defeat any effort at significant re-regulation.

``All you have to do is go back to the savings and loan debacle, and you see amazing parallels,'' Shames said in reference to the 1980s governmental bailout of that industry. ``Government can't afford not to let these utilities operate.''

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-- Martin Thompson (mthom1927@aol.com), December 15, 2000

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It is hard to trim the sails when everyone is manning the pumps.

-- Martin Thompson (mthom1927@aol.com), December 15, 2000.

But a mutiny and throwing the captian to the sharks would do a lot of good for morale!

-- (perry@ofuzzy1.com), December 15, 2000.

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