California Capsule: Can State Afford Electricity?

LCG, March 29, 2001—It may be that California, often referred to as the world's sixth largest economy, the nation's most populous state, consumer of 16 percent of the national output and producer of 13 percent of that output, cannot afford electricity.

If that is the case, all of the above numbers will change.

Yesterday, California Controller Kathleen Connell trotted out figures to show that funds produced by a proposed $12.4 billion bond issue for power purchases and a 40 percent electric rate increase approved Tuesday by state regulators will last only until October of next year.

She estimated that the state will spend $26.8 billion buying electricity in the next 18 months and will come up $7.4 billion short.

Connell said Gov. Gray Davis and members of the state legislature failed to get a clear picture of California's finances before they began to cobble together patchwork remedies for the state's electricity crisis.

"As elected officials, we must all work together so the left hand knows what the right hand is doing," Connell said. "You have to look at the books before attempting to solve the energy crisis."

Davis took exception to Connell's warning, saying "Nobody can make an intelligent decision given all the variable today." The governor complained that "there are too many moving parts" to the problem.

Nothing stands still in the Golden State, including the news.

Davis met behind closed doors yesterday with state Assembly leaders in an attempt to assure them his plans to solve the California energy crisis are bearing fruit. Following the meeting, he said he still believes electricity customers should not bear the brunt of the costs. Lawmakers were admonished not to reveal what was said in the meeting, but one, speaking on condition of anonymity, said "There are still a lot of unanswered questions."

The wholesale price of gasoline could jump to $3.00 a gallon from current levels around $1.20 if power shortages force one or more refineries to shut down, according to a newsletter published by energy consultant Philip Vermeer. California refineries are the only ones that produce a special blend of environment-friendly gasoline mandated by state regulators, so supplies from out of state could not take up a crunch.

Caroline Keith, a spokeswoman for Exxon Mobil which operates a big refinery near Los Angeles, said "We are very concerned about the possibility of having to bring the refinery down at short notice." Refineries can be shut down quickly, but take about a week to restart. "At a minimum we would be down a few days," Keith said. "We would have to go through all of the units and make sure that none of the equipment was damaged."

Southern California Gas Co., a unit of Sempra Energy Inc., said yesterday it has begun modifications which will allow it to deliver an additional 175 million cubic feet of natural gas per day through its pipeline system. The changes, which will increase compression at three delivery stations, are expected to be completed by the end of this year.

The Federal Energy Regulatory Commission yesterday rejected a complaint by the California Public Utilities Commission claiming a unit of El Paso Corp. had manipulated bidding for natural gas pipeline capacity, driving up gas prices and contributing to soaring electricity prices in the state. FERC did not address the allegation that El Paso had sufficient power to rig prices, but said there was no evidence it had done so.

The California Independent System Operator declared another Stage 2 power emergency yesterday and asked investor-owned utilities to curtail electricity deliveries to customers with interruptible contracts. It was the second straight day for a Stage 2 and today could be a third. Cal-ISO declared today a "no touch" day, meaning don't fix anything until it breaks, and said power supplies in the state would be tight.

http://www.energyonline.com/news/articles/c29-1ca.asp

-- Martin Thompson (mthom1927@aol.com), March 29, 2001