Despite hoopla, Calofornia crisis deepens

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Dan Walters: Despite hoopla, crisis deepens

(Published Feb. 20, 2001) At least once a week, Gov. Gray Davis appears before television cameras -- usually at a generating plant or other power facility -- and declares that he's working hard on the state's utility crisis and expects to have it solved very soon.

The governor and his political advisers, having studied polls and other forms of opinion-probing, believe that such appearances burnish his image. And from a purely political standpoint, the media blitz may be working. While earlier surveys indicated that Californians were giving Davis poor marks for his handling of the crisis, a new Los Angeles Times poll shows an improved profile.

Puffery aside, however, Davis' multipronged approach to the situation is not working very well. And unless events begin breaking his way very quickly, he could confront a nightmare scenario of utilities being driven into bankruptcy court by creditors, of generators cutting back sales of power to California and, finally, of massive blackouts as summer heat drives up demand.

The Davis strategy has four major components, and this, more or less, is the state of each as the clock runs:

The state began buying power on the spot market in January as utilities exhausted their credit and rolling blackouts began, but what was supposed to be a short-term program is certain to last for months, and it's costing taxpayers at least a billion dollars a month, which may or may not be recouped from ratepayers later. Although the state was supposed to take care of California's "net short" demand for power each day, the Department of Water Resources is refusing to buy some marginal supplies, thus angering generators.

A long-term power purchase program was supposed to replace the short-term buys, presumably at much lower rates. But despite much hoopla, the state has signed very few long-term contracts, in part because its price targets are lower than suppliers say is realistic given rising natural gas prices, and partially because generators are irritated at being stiffed on their past-due bills and want some assurances of being paid. It'll be at least May before a $10 billion state bond issue to finance these long-term purchases is in place -- and then only if, in fact, there are long-term contracts to finance.

Last week, Davis outlined a plan to bail out utilities by state purchase of their inter-city transmission system, some cash from the utilities' parent companies and some money from ratepayers, but the reaction of utility executives ranges from skeptical to hostile, and there's only lukewarm support in the Legislature. Republicans don't like a permanent expansion of the state's role and question whether any bailout is needed, while many liberal Democrats think it's too generous to utilities.

If the state is flirting with blackouts now, what will happen when heat-driven demand jumps by 50 percent in the summer? Davis insists that California can scrape by with an intensive conservation program and a speedup of new power generation, but there's little evidence that either will have the hoped-for impact. And supplies are threatened by a dry year in the Pacific Northwest, exhaustion of air pollution credits in California and shutdowns of overworked generating plants.

Finally, even if all of this comes together as Davis insists it will, the costs will be truly horrendous. Californians served by the private utilities -- about 70 percent of us -- face a minimum of 20 percent rate jumps. The governor weasels around that likelihood by saying everything could occur "within the existing rate structure" but the existing structure contains that 20 percent boost. And many authorities believe rates could jump by a third or more.

And what if Plan A doesn't work -- a very distinct possibility? There is no Plan B.

http://www.capitolalert.com/news/capalert03_20010220.html

-- Martin Thompson (mthom1927@aol.com), February 20, 2001

Answers

Copyright The Sacramento Bee

Bee Column Dan Walters: A power grab by politicians

(Published Feb. 23, 2001)

Slowly, but inexorably, control over the generation, acquisition and distribution of electric power in California is being shifted from professional utility managers and independent regulators into the hands of politicians. The 1996 utility "deregulation" scheme enacted by the Legislature was an initial foray into politicization. Legislation granting the governor more control over the makeup of the Public Utilities Commission was another. But the current power supply/price crisis has led to even more direct political influence over -- or interference with -- electric service. One hastily enacted bill, for example, gives the governor direct control of the now-misnamed "Independent System Operator," which operates the statewide power grid.

More political intrusion is in the works, from a state takeover of the intercity power transmission grid to the creation of a state power authority that would buy, generate and sell electricity directly. And while local public utilities function well, a state power agency might operate on the whims of professional politicians. The Legislature, for example, wants appointments to the board that would direct a state power authority, and big state power projects would be subject to the same kind of pork-barrel mentality that distorts other public works appropriations. Where power plants were to be built, or where high-voltage lines would be strung, might well depend on who could, and could not, bring political influence to bear, rather than what the system needed to work efficiently.

Clues to the potential pitfalls of a state-operated power system are found in the approaches of Capitol politicians to the current crisis. There is, for example, the unspoken goal of avoiding big power rate boosts until after the November 2002 election -- even if it means running up billions of dollars in debts to do it. Would future rates charged by a state power authority be raised or lowered to enhance the prospects of the dominant party or an incumbent governor? There's no evidence in past performances to indicate they wouldn't be.

And then there's the knotty question of who would get vital power supplies in the event of shortages -- a situation that is already looming and could become worse in future months.

Emergency legislation already gives the state the right to sell power as it pleases, without competitive bidding or even public notice. There's nothing, really, to prevent politically influential power customers such as big industrial enterprises from cutting their own supply deals with politically directed state officials.

And whose juice would be cut off if shortages mean blackouts? Approximately 45 percent of current power customers are effectively exempt from rolling blackouts because they are connected to circuits (called "blocks") that also include vital services, such as hospitals, fire and police agencies, water supply systems and communications centers. The Capitol, not surprisingly, is in one of those noninterruptible blocks.

With the threat of further blackouts looming, legislation is being drafted to designate which customers will suffer and which will not -- thus taking that authority out of the hands of utilities and regulators. And that, in turn, is generating pressure from lobbyists from all sorts of interest groups to place their clients on protected lists. Should farmers be cut off, or biotechnology facilities, or computer chip plants, or schools?

When politicians control any process or system, one can be certain that they will always make expedient political decisions, regardless of the long-term or wider consequences. Thus, we may someday regret allowing the Capitol's self-serving politicians to get their hands on our electric power system.

http://www.sacbee.com/news/special/power/022301walters.html

-- Martin Thompson (mthom1927@aol.com), February 23, 2001.


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