Press Release Statement by Allan Zaremberg, President of the California Chamber of Commerce, on California's Energy Crisis

SACRAMENTO, Calif.--(BUSINESS WIRE)--Jan. 26, 2001--``California's energy crisis is the state's largest economic challenge since the recession of the early 1990's. Because its successful resolution is critical to California's business climate, I wanted to provide all California Chamber of Commerce members with an update on the Chamber's efforts to steady the electric market and ensure all California businesses have stable electric rates and a reliable source of power.

``Over the last few months, we have been working closely with Governor Davis and his administration, the Public Utilities Commission, legislators and the Independent System Operator to ensure all fully understand the effects of the energy crisis on California's businesses and to offer potential short- and long-term solutions.

``At the most fundamental level, California's energy crisis can be best represented as an acute imbalance between supply and demand. It is this imbalance that has greatly contributed to the skyrocketing wholesale price of electricity and which must be addressed in the long term for us to get out of this mess. For the past six months, Southern California Edison and PG&E have, essentially, been financing the difference between the frozen retail electricity price and escalating wholesale prices.

``The California Chamber of Commerce supports maintaining a private utility system rather than a government-run system. To achieve this, utilities must be made credit-worthy. At this point, however, there is a role for the state to enter into long-term electric contracts to stabilize prices.

``In the short-term, the problems that must be addressed include matching the retail price of electricity, which has been frozen, to the wholesale price that has skyrocketed due to the supply/demand imbalance, the high price of natural gas and the shortage of hydroelectric power. Additionally, the price imbalance has pushed the two major investor-owned utilities, Southern California Edison and PG&E, to the brink of bankruptcy, resulting in their inability to buy power beyond their own generation. To reduce the wholesale cost of electricity, long-term stable contracts must be signed immediately and the retail price must be brought into alignment. Hopefully, by the end of this week, bids for these long-term contracts will be received by the state. Because the utilities are near bankruptcy, they are not in a position to sign these contracts; therefore, at this point, only the state can negotiate and sign long-term contracts on behalf of the utilities and in turn sell the power to the utilities. Such long-term contracts will bring down the price of electricity and provide reassurances to businesses that are concerned about reliability. The prices of these long-term contracts will determine whether current rates are sufficient to maintain a positive balance between retail and wholesale prices.

``Other short-term solutions to stabilize the market and lower wholesale electric costs include:

Reconcile the disparity between wholesale and retail electric rates. Allow the utilities to become credit-worthy once again so they can procure electricity for their customers. Allow utilities to enter into long-term contracts with energy suppliers, guaranteeing a predictable price and reliable source of electricity for California business and residential users. Allow utilities to continue their traditional role of transmitting electricity. Reduce demand through aggressive conservation efforts aimed at all classes of customers. Replace existing interruptible programs with an equitable and fair interruptible/curtailment program for large industrial and commercial users of energy that allows businesses to plan adequately for interruptions. Approve temporary variances from labor, air quality and water quality regulations to large industrial users that curtail use as part of an interruptible program. Provide incentives for businesses that generate their own power to make their excess energy capacity available to the utilities. ``Clearly, the most important component of a long-term solution equalizing electric supply and demand is developing new generation or supply in California. To do this, the California Chamber has recommended:

Streamlining the approval and environmental review processes for new power plants. Exploring opportunities to provide tax incentives for the development of new electrical generation. ``The California Chamber supports allowing the private sector to play a fundamental role in alleviating the current energy crisis through the development of new generation and conservation techniques. Our options are limited and the longer the state waits to implement the necessary relief measures, the more likely it becomes that the state will end up as the utility.

``The California Chamber also supports adoption of real-time metering that allows consumers to make choices about their use of electrical energy based on the real-time price of electricity.

``There is no question that deregulation as written and implemented was a failure in California. The PUC required the utilities to sell much of their generating capacity and then refused to allow them to enter into long-term contracts as a hedge against price spikes. Moreover, the Legislature inappropriately permitted electricity to be sold and bought on the spot market. We now know that the spot market drove up prices for last-minute energy demands. The price of wholesale electricity, whether purchased in advance or at the last minute, still would have increased by 20 percent even without deregulation because, bottom line, demand has outstripped supply on the West Coast. In fact, before deregulation, no new power plants had been built in more than 10 years. Since the passage of deregulation, private investors have applied to the California Energy Commission for approval to build more than 20 new facilities.

``We know frequently interrupted electric service, rolling blackouts and/or other problems caused by the energy crisis have had a severe impact on many of you. We are very concerned and the California Chamber is doing everything it can to protect your businesses and California's economy. It is important to remember that irrespective of the issue of deregulation, we would still face the fundamental imbalance between supply and demand. Unfortunately, there are no easy solutions and everyone will be asked to contribute to keep California's economy healthy and growing.''

Kathy Fairbanks Vice President, Media Relations California Chamber of Commerce 916/930-1253 phone 916/325-1273 fax

http://biz.yahoo.com/bw/010126/ca_chamber.html

-- Martin Thompson (mthom1927@aol.com), January 28, 2001