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March 22, 2001

State's bill for energy could double this year

BY STEVE JOHNSON AND JOHN WOOLFOLK Mercury News

Warning that California is imperiled by the prices it is paying for electricity, a report Thursday said the state's annual power tab could wind up being 10 times what it was two years ago.

At the current rate of spending, the report estimated that the total electricity bill in California this year could hit $70 billion, which is more than twice what it was last year and about 10 times what was paid in 1999 and 1998.

``The California electricity market has gone from being `dysfunctional' to precipitating a crisis,'' according to the report from the Independent System Operator.

It added that the price being charged ``threatens any semblance of just and reasonable consumer rates, the financial viability of California's investor-owned utilities, the financial stability of California, of its neighboring states and of the nation.''

While power suppliers denied any wrongdoing, the report said the state appears to have been hit with ``excess'' charges totaling $6.87 billion since May, based on an assessment of the typical operating costs of power plant owners. Out of that total, $6.2 billion appeared to be excessive charges during times when power was not in particularly short supply, the agency said.

The cost of power has become a growing concern now that the state has stepped in to buy it on behalf of Pacific Gas & Electric Co. and Southern California Edison, which claim to be so strapped for cash that they are on the verge of bankruptcy.

In making public the report, which was sent to the Federal Energy Regulatory Commission, officials at the Independent System Operator were careful not to accuse any power companies of price gouging. While the prices appeared to be unreasonable, they said, the state needs to learn more about the specific operating costs of power plant operators before they could determine whether California was cheated.

The officials said they were considering asking the federal agency, which oversees power wholesalers, to order the suppliers to make refunds. In the past two weeks, the federal agency has warned a number of suppliers that they may have to refund $135 million in apparent overcharges during January and February.

But many experts question whether the federal agency is serious about demanding such refunds, so California officials also are reviewing the possibility of suing the suppliers or seeking criminal charges against some of them. ``We're working very closely with a number of agencies to review the information we currently have to determine what remedies may be available,'' said Charles Robinson, the Independent System Operator's general counsel.

The report's suspicions were partly bolstered by another study made public Thursday by the state auditor. It said California's market structure encouraged bidding gamesmanship by both utilities and power sellers ``in an effort to manipulate wholesale prices to their advantage.'' But it stopped short of accusing power generators of profiting illegally.

``There's clearly some evidence of market abuse,'' said state Auditor Elaine Howle. Even so, she added, ``that's not to say it's anything illegal. We hired consultants, they looked at some of the bidding, and they weren't comfortable going that far.''

Although no power companies were named in either report, officials with several suppliers insisted they have done nothing wrong.

``We've conducted our business legally and ethically,'' said Richard Wheatley, spokesman for Reliant Energy, which runs five major California power plants. ``The ISO report appears to be nothing more than just another attempt to put blame at someone else's doorstep, when there's been very little action out of Sacramento to resolve the problems in the California marketplace.''

Duke Energy spokesman Jeremy Dreier said the company, which runs plants in Moss Landing and Morro Bay, sold most of its power last year and this year in relatively low-cost, long-term contracts, and was among the first to offer such deals to the state. He added that Duke increased production from its aging plants to meet surging demand.

``The fact that we were among the first to bring long-term contracts to the table speaks volumes about how we're trying to serve this market,'' Dreier said.

John Sousa of Dynegy Inc., which co-owns three major California plants, added that ``given the market conditions, the rates we charged were just and reasonable.''

http://www0.mercurycenter.com/local/center/rpt032301.htm

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

Answers

Everything is in slow motion. PG&E and So Calif Edison and the state of California could see this coming many months back. Its like trying to move the sun and the earth. Its a degrading situation and the only thing that has changed is that the state (taxpayers) are now picking up the tab as an account payable.

Long-term effects for California residents will be massive tax hikes and/or rate increases AND the credit rating for the states bonds will be downgraded. If the taxpayers protest too much on footing the bill then the state of California will go into default. In any case, businesses and citizens are going to defect in massive numbers.

Even though California citizens are paying massive dollars for their government, they aren't qualified to manage a mobile home court because its always politics and not whats in the best long-term interest of the residents.

-- Guy Daley (guydaley@altavista.com), March 23, 2001.