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California Faces Dire Summer Power Shortfall

Thursday, March 15, 2001

By Patrick Connole and Tom Doggett

WASHINGTON (Reuters) - On a day Californians again faced threats of power shortages, U.S. Energy Secretary Spencer Abraham said on Thursday blackouts were "inevitable" this summer in the nation's richest and most electricity-starved state.

The California agency that manages a statewide transmission grid declared the first power alert in 10 days after a sudden loss of electricity imports from power plants in the Pacific Northwest.

Officials at the California Independent System Operator said about 1,600 megawatts of power were off line, pushing the state's energy reserves down to within five percent of actual demand and prompting declaration of a "Stage Two" alert.

An ISO spokeswoman said it was unclear why the generation -- enough to power about 1.6 million homes -- was cut.

At the hearing before the Senate Energy Committee, Abraham forcefully reiterated the Bush administration's opposition to price controls in Western region. He said wholesale price caps discouraged investment and would potentially cut off vital Canadian energy imports.

Industry experts have cautioned California could total anywhere from 20 to 200 hours of rolling blackouts during hot summer days when air conditioner use rises, he said.

California, which has struggled to solve chronic power problems in the past nine months, has already had three blackouts since June. In January alone, blackouts rolled across northern California for two days, forcing grid operators to briefly shut down entire neighborhoods on a rotating basis to avoid uncontrolled and far more widespread outages.

"The problem will get worse, and blackouts this summer appear inevitable when peak demand is expected to be 61,125 megawatts while supplies are anticipated to be only 56,159 megawatts," Abraham said at the hearing.

California Gov. Gray Davis, a Democrat who has been desperately trying to craft a long-term solution in which the state purchases the transmission lines of three major utilities and encourages conservation, said he remained confident California "would have just enough power to avoid blackouts" over the summer.

"Federal officials are of a different view. Our goal remains to do whatever humanly possible to avoid blackouts," Davis said.

BUSH AGAINST PRICE CONTROLS

California and Pacific Northwest lawmakers on the energy panel blasted the administration's reluctance to get behind price caps, saying a temporary cap would ease the pain for utilities, businesses and consumers paying hundreds of dollars more per megawatt-hour of electricity than they usually do.

Testifying before the panel, Washington state Gov. Gary Locke said record low water levels depleted hydro reserves in his state, jeopardizing jobs and pushing power bills sky high.

"Utility ratepayers are now facing surcharges as high as 75 percent of their monthly retail power bills," Locke said.

Later in the day, a White House spokesman said despite threats of continued power price spikes and shortages in the West, President George W. Bush was against price intervention.

"The president does not support price controls. He thinks price controls have not worked, will not work, and do not work," spokesman Ari Fleischer told reporters.

PACIFIC DROUGHT LOOMS

A spring weather forecast issued by the federal government added to the grim outlook.

Drought conditions were forecast to continue in the Pacific Northwest, where dams provide hydroelectric supplies for California. Seattle's rainfall is already one foot under normal, the government forecasters said.

With no significant new generating plants built in the state during the past decade, California has had to buy more electricity from wholesalers in other states.

California's power woes stem from a 1996 state deregulation law that barred utilities from passing through higher wholesale costs to consumers, pushing the companies to the brink of bankruptcy with some $13 billion in unrecovered power costs.

State regulators voted Thursday to block the planned layoffs of more than 3,000 workers at California's two biggest utilities. The California Public Utilities Commission said it feared layoffs of employees in field crews, meter reading and customer service would hurt consumers.

The state signed a preliminary pact last month with Edison International, agreeing to spend about $2.76 billion to buy the utility's 12,000-mile transmission network. In exchange, the utility would sell electricity to the state at below-current market rates for 10 years, and would be allowed to issue bonds to recover its recent losses.

Two other utilities -- PG&E Corp. and Sempra Energy -- are still in negotiations with the state.

BUSH TEAM LIKES REFUNDS

Abraham assured the senate panel that the White House was concerned about high energy prices in California.

The administration supports a recent FERC order requiring $69 million in refunds to California utilities that were overcharged for wholesale power during January, he said.

The FERC order found 13 wholesale suppliers charged more than the $273 per megawatt-hour price that was justified in January when California faced dire shortages.

The White House contends that a national energy plan is needed to address long-term electricity issues as well as oil, natural gas and renewable fuels. A presidential task force, headed by Vice President Dick Cheney, is expected to have its recommendations ready by late April.

Robert Glynn, chairman of PG&E, said a five-month cap on wholesale power prices was necessary.

"Based on what we know today, there is a very good chance that the west is heading for a meltdown," Glynn told the Senate panel. That could produce "stratospheric" prices by summer, he added.

A price cap could be ordered by Abraham or FERC for just the peak summer months of May 1 through Sept. 30, Glynn said.

Separately, two senators announced they planned to offer legislation requiring temporary price caps.

Dianne Feinstein, a California Democrat, and Gordon Smith, an Oregon Republican, said such a cap would allow wholesalers to charge "just and reasonable" prices. The legislation would also require western states to pass on the cost of electricity to retail customers, but the states would be able to determine how and when this would be done.

Copyright ©2001 Reuters Limited.

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-- Martin Thompson (mthom1927@aol.com), March 15, 2001