Blackouts aren’t rolling, but state still has bills to pay

By Karen Gaudette The Associated Press
Monday December 31, 2001

SAN FRANCISCO – A few months ago, California was a megawatt wasteland. As it finishes a tumultuous year, the state now has electricity in such abundance that fallen power giant Enron Corp. has come asking for leftovers. 

The year began with rolling blackouts and concluded with state officials debating how to package $12.5 billion in bonds needed to cover power costs. In between, customers had their rates increase to among the highest in the nation. 

“It’s been one helluva year, hasn’t it?” asked S. David Freeman, chairman of the state public power authority. “But I think if you can resurrect the situation in January and then look at it in December, you have to conclude that we’ve made a lot of progress.” 

The state’s monthly electricity bill, which soared to nearly $2 billion in May, was down to $415 million in October. Efforts are underway to fix transmission glitches that plunged some parts of the state into darkness. 

After analysts warned of frequent rolling blackouts, there were only six such episodes in 2001. And with natural gas prices falling, surveys show Californians have relegated energy issues to the back burner. 

But California’s power problems are far from finished. 

The state owes its general fund $6.1 billion for electricity it bought for three cash-strapped utilities. The largest of those utilities, Pacific Gas and Electric, went bankrupt in April. It took a secret settlement with the state to keep another, Southern California Edison, from following a similar path. 

Meanwhile, claims that power companies unfairly drove up prices in 2000 and 2001 remain stalled before federal regulators. 

And months after they first tried to agree, the state Public Utilities Commission, Gov. Gray Davis, Treasurer Phil Angelides and the Department of Water Resources still are discussing how they’ll persuade Wall Street to buy $12.5 billion in bonds to settle the power tab. 

The delay costs the state $250,000 in interest each day, according to Davis spokesman Steve Maviglio. 

The power crunch has become a budget crunch. 

Power expenses, combined with the cost of defending airports and bridges against terrorist attacks and lost revenue from the stumbling high-tech economy, could mean painful cuts in state programs — including ones that reduce energy bills for the poor and elderly. 

“No one is claiming victory over this thing,” Freeman said. “I think it’s 2003 before we start thinking we have the kind of surplus we need to have and we can relax.” 

Whether prices soared because of market manipulation or old-fashioned capitalism remains a subject of debate, though federal regulators found one out-of-state power seller charged $3,880 per megawatt hour when entitled to only $273. 

Yet, against all odds, the state generally managed to keep lights on — and the outlook for the future is brighter. 

Electricity the state has bought since January for customers of those three utilities now costs $15 million a day, Freeman said, rather than the $100 million a day it cost earlier in the year. 

Ten new power plants that together can generate enough electricity to power nearly 1.5 million homes are on line, according to the California Energy Commission. 

And there’s a new appreciation of conservation. 

By unplugging hot tubs, sweating through the summer with less air conditioning and buying hundreds of thousands of energy-efficient refrigerators, washing machines and lightbulbs, Californians conserved energy beyond anyone’s expectations. 

“The biggest impact we’ve seen in the last year is just the conservation spirit in working together, reducing demand,” said Stephanie McCorkle, a spokeswoman for the state’s power grid manager. 

Davis praises the more than 2 million Californians who reduced demand by slashing energy use by 20 percent this summer. Temperate weather and price caps on electricity ordered by federal energy regulators in June also helped. 

The governor also is claiming credit, lauding his decision to sign long-term deals locking in prices for electricity. Those controversial deals will cost the state about $40 billion over the next two decades. 

A variety of factors got California into its mess: 

— Dry weather in the Northwest left hydroelectric dams with less water spilling through to create electricity, which California imports. 

— Power companies unsure of California’s efforts to deregulate its electricity markets had stopped building power plants, while the population continued to grow. 

— Transmission bottlenecks prevented the grid manager from sending electricity to the corners of the state when they needed it. 

All these factors caused California to come up short during the busiest times of day, triggering dangerous power alerts last winter and spring. When the lights went out, they triggered fender benders, melted ice cream and stalled computer chip factories. 

Faced with the prospect of more blackouts, lawmakers had little time to consider the big picture, said Sen. Debra Bowen, chair of the Senate Energy Committee. 

“We never got a chance actually to look at what we wanted the electricity delivery system to look like,” she said. “Most of that had been determined for the next few years in the manner in which the state lurched from crisis to crisis.” 

Critics say electricity never should have been deregulated under California’s flawed plan. 

“Electricity is not a commodity,” said Pat Lavin, business manager and financial secretary for the International Brotherhood of Electrical Workers No. 47. “It’s a staple of life.” 

Nevada halted its deregulation plans after California’s misadventure. Texas, home to some of deregulation’s most vocal backers, including the now-bankrupt Enron, is marching onward. 

“I think it’s dead as a doornail in California,” Maviglio said. “The lesson learned from California is to go slow, not to deregulate as quickly as we did and make sure you have adequate supplies so you don’t have to depend on out-of-state owners.”