Sunday, June 3, 2001

Consumers tell forum electricity crisis is scam

By Katie Cooper Staff Writer

STUDIO CITY -- With the state moving ever closer to this summer's expected power drain, hundreds of people from across Southern California turned out Saturday for a forum on the energy crisis. The so-called Energy Summit 2001 was billed as a question-and-answer session on the origins of California's power problems and the best ways to cope with the crunch in the coming months.

But while state officials and representatives of public utilities talked about the need for price caps and conservation, the audience at the CBS Studio Center grumbled that the crisis was nothing more than a political scam.

And more than a few hoisted blame for the current problems on President Bush.

"With his family's associations with oil and gas business interests, his laissez-faire reaction to (the crisis) is almost unethical," said Valley Village resident Chris Toussaint. "It seems like it's a payoff."

When panelists assembled for the event -- sponsored by radio station KFWB-AM (980) -- took potshots at Bush's reaction to the state's energy woes, audience members broke into applause.

And mention of drilling for oil in the Arctic National Wildlife Refuge or relaxing pollution standards for power plants drew hisses and boos. The two proposals have been bandied about by the Bush administration as solutions for the energy crisis.

"If the big energy producers of another country were doing this to us, he would have done something by now," said Colleen Azen, 58, of Hollywood Hills. "Instead, he is creating a war between the states."

Actor Ed Begley Jr., a well-known conservationist, drew knowing laughter from audience members when he said Texas-based oil and gas suppliers were creating suspicions among Californians when they raised their wholesale prices at the same time.

"I've been following power plants for a long time ... and it's just a little weird when they all have to shut down for maintenance on the same day," said Begley. "I mean, come on."

And Assembly Speaker Bob Hertzberg, D-Van Nuys, repeatedly drew attention to the increased profits out-of-state electricity suppliers were making, he said, at the expense of California.

"Their profits are up 508 percent," he said.

Azen said the large turnout of people at the Saturday morning forum was a sign of momentum toward a solution to the state's energy problems.

"There hasn't been enough attention to this," she said. "Electricity is the lifeblood our economy."

http://www.dailynews.com/news/articles/0601/03/new08.asp

-- Martin Thompson (mthom1927@aol.com), June 03, 2001

Answers

Of course their profits are up 508%. It's called the economics law of supply and demand. Idiot!

-- Wellesley (wellesley@freeport.net), June 03, 2001.

The economic Law of Supply and Demand is a basic foundation of Free Market economics. This Law of Supply and Demand only functions if and to the extent that the situation in the commodity at issue (in this case electricity) is operating under Free Market conditions.

In Adam Smith's "The Wealth of Nations", the precondtions for a Free Market to exist include: There must be many buyers and sellers, all must be free to enter and leave the market, all must have good knowledge of product quality, and there must be excellent buy/sell trading communication.

The electric market as it exists today is not even close to being a true Free Market. The "buyers" are utilities (or government - even worse), who are just middlemen, not the ultimate buyer (consumer.) These middlement (and sellers also) are relatively few in number.

But, worst of all, the true "buyer" doesn't even know what the so- called "free market" price of electricity is, at any time. Until all electricity consumers are paying the real-time free market price of electricity, (and KNOW what this price is at all times); there will not be any Free Market in electricity. Hence, the pricing situation that prevails is not the result of Supply and Demand; but distortions caused by the absence of fundamental prerequisites to the existence of a Free Market.

-- Robert Riggs (rxr.999@worldnet.att.net), June 04, 2001.

Energy Summit: Blaming The Feds (KFWB) - During the panel discussions at the KFWB Energy Summit held at the CBS Studio Center in Studio City on Saturday, there was almost unanimous criticism of the Federal Energy Regulatory Commission (FERC), the body charged with regulating the electricity market nationwide.

Are California lawmakers to blame for the electricity crisis? State Assembly Speaker Robert Hertzberg says “unequivocally, yes.” However, he stresses that the federal government is not doing their part in “ensuring prices are fair and reasonable.”

The panelists contend that the agency has been slow to respond to energy problems surfacing for years. Carl Wood, a member of the Public Utilities Commission, said that his agency reported to FERC problems with natural gas prices two years ago.

The Natural Gas Connection

Utilities fell under debt paying for sky-rocketing energy prices from generators; power plant operators pointed to the high cost of natural gas; California's Senior Energy Advisor, S. David Freeman accused natural gas companies of "ripping us off."

The high price for natural gas was seen as one of the main causes of high power costs - the reason that electricity prices went up astronomically when demand for power increased only about 4 percent.

Natural gas prices have gone up seven fold in the last two years, said John Stout, the senior vice president of Reliant Energy. Two thirds of every dollar in revenue at Reliant goes to pay for gas, he said.

“There’s no reason on god’s green earth that we should be paying 10 bucks for something that cost 50 cents,” said Freeman. He wants FERC to step in to bring the price of natural gas down.

Stephen Baum, the chairman, president, and CEO of Sempra Energy added to the criticism saying his company is paying 30 times more for natural gas than it did last year. He said it was a “crime” that FERC allowed that to happen.

Also, the increase in demand meant a need for more power plant construction, and the use of more capital which power companies have to recoup, said Stout.

In addition, he pointed to the reduction of the imported electricity supply. Drought in the Pacific Northwest left hydroelectric power plants with less generating capacity. The plants usually supply about 20 to 25 percent of the state’s power needs. The loss of power imports from the Pacific Northwest will be worse this year, Stout said. And that reduction in supply has contributed to the increased costs as well, he said.

Predicting Disaster

California Public Utilities Commissioner Carl Wood says this “disaster” was actually predicted by a number of people, but the warnings were generally ignored. He says a degree of re-regulation is necessary to "put an end to this mess."

Wood concedes that the “PUC bears a tremendous amount of responsibility for this,” but adds that most of the members who supported deregulation are no longer serving on the commission.

Wood also says that a lot of regulatory power was handed over to FERC in the process of deregulation. Chairman of Southern California Edison Stephen Frank expressed his anger over how that federal agency has handled the crisis.

“I have been appalled at the Federal Energy Regulatory Commission’s unwillingness, refusal to do its job to moderate prices in this marketplace,” said Frank.

John Stout attributes those high prices to the increased cost of natural gas and the way the market was forced to operate after deregulation passed. He said it required power companies to basically buy back the power they had generated, which created a unique situation.

“You have a scarcity, you have an auction, you have buyers competing with one another for scarce resources,” said Stout, all of which led to a spike in power prices.

A Slippery Economic Slide

Economist Chris Thornberg says the nation is sliding into a national recession right now, and that is a larger threat to the state economy than the power crisis. He says California residents consume so little power per person, even a large rate hike will make a small financial impact.

California Chamber of Commerce President Allan Zarenberg did not share that optimistic economic view. He says on a large scale, the increased prices may not be a strain on the economy, however local businesses that use a lot of energy are sure to suffer.

“It does have an impact, and it has an impact in individual businesses and we need to pay attention to that,” said Zaremberg.

As the cost of doing business increases, companies charge higher prices or layoff employees, Zaremberg said. The public needs to be aware that those decisions could have a wider economic impact, he said.

“I think the business community is scared to death of the energy crisis in California, as well they should be,” said Zaremberg.

A number of panelists said what businesses need most from the government and regulators is predictability, especially as far as blackouts are concerned. They say safety and financial issues are both at stake with rolling blackouts on the way.

The War

In his keynote address before the panel discussions, Freeman compared the ongoing electricity crisis to a war.

He emphasized the importance of focusing on getting out of it rather than debating how we got in it. He said we are in an “electrical drought."

“It’s too late to get into the blame game. . . this is too serious. . . to waste anymore time on who caused it, why we went wrong,” Freeman said. “We are at war. Why we got here and how we got into it is not nearly as important as how we can win the war.”

Freeman recounted the events leading up to the energy crisis by talking of the surplus of energy in the 90’s which resulted in lower prices. The surplus gave no incentive for the creation of new power plants, he said. Shortly after deregulation passed, the economy boomed and the demand for electricity quickly exceeded supply.

He dispelled theories that the electricity shortage is a farce. He said it is very real, but the state is overcoming it with the power plants being built this year and next year. He expects an electricity surplus by 2003, achieved not just by increasing power supplies but also by conservation.

“Our determination is to get back to a 15 percent surplus, and then keep a surplus,” Freeman said.

He also says the state is not relying on the federal government for help. “We are taking control over our destiny,” said Freeman.

The 100-Year Legacy

For about 100 years, Freeman said, there was plenty of power at low prices, “but we had to improve. . . we Americans are not satisfied with something that just works. . . we have to make it better. . . so here we are."

Freeman criticized the federal government, echoing the words of Governor Gray Davis. “They’re still day dreaming that somehow deregulation is going to be a better thing,” Freeman said when chiding federal regulators for not imposing price caps.

“We have a real shortage of electricity. . . the economy grew, the demand for electricity has grown, and on top of that Mother Nature is not helping us,” Freeman said, pointing to the drought in the Pacific.

“That’s a big chunk [of imported power lost]. It’s kind of like three or four huge power plants are broke,” Freeman said.

Freeman also pointed to the newly-created California Power Authority. The organization will work to finance and build power plants, when private companies are not willing to build them.

“A complete free market in electricity is inherently unworkable.” Freeman said, “you’ve got to have some force out there that assures that you maintain a surplus [of power].”

Conservationist Ed Begley Jr. says Los Angeles residents can and should do their part to ease the crisis by installing solar and wind power systems in their homes. He says an “aggressive” conservation program and a focus on renewable energy sources is “what has to happen” at a state level to handle power woes. Henry Martinez with the Los Angeles DWP says they are currently in a very good position and they are preparing for the future.

The DWP did not participate in deregulation and runs its own power plant. It has plenty of power for its customers and sells surplus power to the state.

Martinez cautioned that the DWP’s situation “can very quickly flip- flop if we’re not careful.” .

He says the city-owned utility is trying to “stay ahead of the game” by diversifying and increasing efficiency.

The Panels

Panel 1: How Did We Get Here?

Carl Wood, California Public Utilities Commissioner Wood has over 20 years experience in the utility industry, including work with unions representing electricity and gas utility employees. He was appointed to the PUC by Governor Davis in 1999 and is serving a six-year term.

Stephen Baum, Chairman/CEO, Sempra Energy (Southern California Gas/San Diego Gas & Electric) Baum was promoted to the top post at Sempra energy in Sept. 2000. He also held leadership positions at Enova Corporation, the former parent company of San Diego Gas & Electric.

Stephen Frank, Chairman/CEO/Pres., Southern California Edison Frank currently manages the daily business operations of one of the country's largest electric utilities. Prior to joining SCE in 1992, he was President and Chief Operating Officer of Florida Power and Light Company.

John Stout, Sr. Vice President, Reliant Energy Stout is responsible for legislative and regulatory coordination with power officials, including those in California. He has worked in the power industry for 29 years, mostly in the regulated utility environment.

Henry Martinez, Asst. General Manager, Los Angeles Dept. of Water & Power Martinez began his utility career as an entry-level engineer for SCE. He progressed through various positions at SCE, moved onto the Tennessee Valley Authority Hydro Organization and settled at the DWP in 1998.

Panel 2: How Do We Cope?

Robert Hertzberg, Speaker, California State Assembly (D-Sherman Oaks) Hertzberg has focused his legislative efforts on reforming state and local government to improve quality of life for his San Fernando Valley constituents and others throughout California. He was chosen to lead the Assembly in January 2000.

John Campbell, California State Assembly (R-Irvine) Campbell is Orange County's newest assemblyman. He is also an accomplished businessman and community leader. He has worked in the automotive industry since 1978.

Allen Zaremberg, President, California Chamber of Commerce Zaremberg became CEO of the California Chamber of Commerce in 1998, after holding other positions within the Chamber for six years. He also served as an advisor to Governors Pete Wilson and George Deukmejian.

Dr. Jack Lewin, Exec. VP/CEO, California Medical Association Levin has served as CEO of the nation's largest state medical association since 1995. Prior to his California post, he served as Hawaii's Director of Health and CEO of Hawaii's largest hospital system.

Chris Thornberg, Economist, UCLA Anderson Graduate School of Management Thornberg is a senior economist with the UCLA Anderson Forecast and has published work on international economics, energy and labor issues.

Ed Begley, Jr., Actor and noted Conservationist Begley is a long-time advocate of energy conservation and has served as spokesman for the American Lung Association.

History Of A Crisis

California's electricity crisis did not happen overnight, however most agree the state's move to deregulate electric utilities marked the beginning of many problems. Deregulation was supposed to lower rates for consumers because it required utilities to buy power on the open market, presumably at lower, competitive costs. When deregulation was approved in 1996, the state had plenty of electricity. However, the state's grid has since become stressed by a number of factors. Wholesale prices have increased roughly fivefold since summer, leading some state officials to accuse suppliers of artificially inflating prices. Also, higher demand, aging power plants, transmission glitches, scarce hydroelectric power in the Northwest and less imported electricity continue to strain the system.

The state's electricity deregulation law also capped what utilities could charge their customers and instituted a rate freeze until March 2002. The state's investor-owned utilities, Pacific Gas and Electric Co. and Southern California Edison Co., have been paying dramatically higher costs for wholesale electricity. Without being able to recoup those costs, the utilities say they have lost more than $14 billion since June. The state has stepped in and spent billions of dollars to buy power for the cash-strapped utilities because of their poor credit ratings. PG&E filed for federal bankruptcy protection April 6, saying it hasn't received the help it needs from regulators or state lawmakers.

The Public Utilities Commission also approved rate increases of 37 percent for residential customers with the heaviest energy use and 38 percent for commercial customers, and hikes of up to 49 percent for industrial customers and 15 percent or 20 percent for agricultural customers to help finance the state's multibillion-dollar power buys.

-- PHO (owennos@bigfoot.com), June 04, 2001.