Washington's Role Helped Spark California's Power Crunch May 31, 2001

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WASHINGTON, May 29, 2001 (States News Service via COMTEX) via NewsEdge Corporation - Although it is popular in Washington to point the finger at California for its energy crisis, the federal government shares a good deal of blame for the California energy crisis.

In 1995, the Federal Energy Regulatory Commission helped lay the foundation for what has become the debacle of the new millenium when it rejected a state plan calling for new power plants that today would be providing 1,300 megawatts in new electricity.

What's more, records from that year show that the regulatory commission expressed "grave concerns about the need" for new power generation in the state.

Had those power plants been built, they would be generating power for an estimated 1.3 million homes at the wholesale fixed cost of between 3.5 and 6.6 cents per kilowatt-hour with binding, long-term contracts.

At the time, retail prices averaged 9 cents per kilowatt-hour, according to FERC documents.

In recent months, wholesale prices have been averaging between 12 cents to 13 cents per kilowatt-hour, according to California Public Utility Commission spokesman James Hendry. During peak usage, those prices can reach 20 cents to 40 cents and at times have rocketed to a record $1.90 since last December.

"Everybody is saying those prices will go higher this summer," Hendry added.

Nevertheless, members of the Federal Energy Regulatory Commission -- known as FERC -- have regularly blamed California for failing to build new power plants to meet present power needs that have sparked energy shortages and higher prices throughout the West.

The commission also shares the widely held view that faulty legislation aimed at deregulating the state's power industry in 1996 is to blame.

Although FERC put limited price caps into effect on wholesale electricity on Tuesday, the commission continues to resist broader demands to stabilize prices in the Western region, as has been sought by California Gov. Gray Davis, and other lawmakers. They claim that FERC has ignored their responsibility to ensure that electricity rates are "just and fair."

President Bush has sided with FERC's limited price caps because he believes that market-oriented supply and demand is the only sure way to restore permanent order to the crisis.

The messy trail of the Golden State's rolling blackouts and power failures passed through Washington in January 1995 when several California utility companies asked FERC to rule against the state's plans to build power facilities around the state.

As part of that plan, first announced in 1992, the California Public Utilities Commission nailed down bids through a competitive auction process to build two new geothermal plants, one wind farm, and the repowering of an existing steam plant in Southern California. A "badly needed" gas-powered plant on the San Francisco Peninsula also was called for.

All would have been up and running by 1999.

Had the plants been build, California's electrical utilities would have been required to buy power from them under a long-standing policy first enacted by Congress in 1978, the Public Utility Regulatory Policies Act. But two utility companies protested, claiming they didn't need more electricity. Besides, they said they could provide or purchase cheaper electricity elsewhere if needed.

California used "a flawed auction process," recalled Art Larson, spokesman for Sempra Energy, parent company of San Diego Gas & Electric, when asked about the decision. "It didn't consider the least-cost bids," he said, because California mandated the use of renewable energy.

So, just two months before construction on the plants was to begin, Southern California Edison and San Diego Gas & Electric filed a protest with FERC. The five-member regulatory commission approves rates for wholesale electric sales of electricity and transmission in interstate commerce.

Both utility companies argued that because the PUC favored renewable energy generation, it ignored less expensive ways to provide electricity such as gas-fired plants and other sources.

Southern California Edison also expressed concerns about California's efforts to deregulate the electric utility industry that soon would be approved the following year. Such legislation would likely bring down energy costs, it predicted.

Other parties also weighed in on the complaint, including the National Coal and Western Fuels Association, which claimed that Edison could purchase power from out-of-state sources at 3 cents a kilowatt hour. Today, FERC and other critics of California's electricity policies believe that the state relies far too heavily on out-of-state sources.

California responded to the complaints by noting that it did approve gas powered turbines in its plans, but also wanted "clean" energy suppliers as part of the state's environmental objectives. After factoring in the costs of controlling pollution in California caused by other forms of energy production, the price for electricity provided from alternative sources would be competitive, it said.

California's argument fell of deaf ears and FERC sided with the utility companies. In its ruling, the commission stated that California's auction procedure violated the standards set by PURPA because the state explicitly sought out renewable energy providers and ignored other sources in the bidding process.

FERC added that "we have grave concerns about the need" for added electricity in California. It also cautioned that the fact that the state was moving toward deregulating the electricity industry, "heightens our concern" about forcing utility companies into long-term contracts.

FERC's controversial ruling, which was opposed by many independent energy organizations, still disturbs Loretta Lynch, chairman of the California Public Utilities Commission.

What derailed the effort to build more power "was not the actions of California, but instead the actions of FERC itself," she said last December when FERC first denied requests to place wholesale price caps on electricity in western states and blamed California for not building enough power plants.

And how do the utility companies now feel about the power plants they fought in 1995 when long-term contracts would have been had for a fraction of the cost they are now paying?

"20/20 hindsight is a luxury," responds Larson of Sempra Energy. "But the prices were out of line in the 1990s."

By David Phinney

http://www.individual.com/browse/story.shtml?story=v0530518.4se&level1=46600&level2=46604&level3=43323&date=20010531

-- Martin Thompson (mthom1927@aol.com), June 01, 2001

Answers

I've been hearing second-hand gossip that the utilities themselves helped stopped state-approved plants from being built in the 90s. This is the first news article I've seen that says the same thing.

Sounds like greed had just as much to do with our current problems as those "wacky environmentalists". And, also, muchas gracias to FERC.

-- Margaret J (mjans01@yahoo.com), June 01, 2001.

Please remember the FERC then was a Clintoon FERC

-- (perry@ofuzzy1.com), June 01, 2001.

Good point. I heard on the radio news last night that Clinton also gave California short shrift when it came to capping electric prices. The Guv got rebuffed last year, too.

-- Margaret J (mjans01@yahoo.com), June 01, 2001.