Feds: We'll Correct Power Woes

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Feds: We'll Correct Power Woes

Regulator Promises Strong Action To End West's Problems Scarce Electricity Alarming Officials In California, Washington No Blackouts Expected For Rest Of The Week

SACRAMENTO, Dec. 14, 2000 (CBS) A federal regulator is promising strong action to ease California's electricity woes after the state's second brush with blackouts in a week.

"We believe in competitive markets," said James Hoecker, chairman of the Federal Energy Regulatory Commission. "We believe we can make them work, but they have to work responsibly and they have to produce reasonable prices."

The commission will take "strong action" and "be part of the solution and not part of the problem," he said. FERC is scheduled Friday to order changes to try to correct the state's power problems.

Gov. Gray Davis wants the commission to rein in skyrocketing wholesale electricity prices, in part by imposing a regional price cap. Washington state Gov. Gary Locke urged similar action in a letter to President Clinton, Energy Secretary Bill Richardson and Hoecker.

CBS News Correspondent Sandra Hughes reports that California came dangerously close to turning off the lights: threatening blackouts because electricity reserves dipped to nearly nothing.

"If there are blackouts in this state, there's going to be more crime, more car accidents," said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights.

Who's Next? As power problems plague California, other states wonder and worry if and when they will have electricity woes. California narrowly escaped rolling blackouts Wednesday after about a dozen suppliers demanded cash for electricity because of the shaky financial condition of two of California's power-strapped utilities, Pacific Gas & Electric Co. and Southern California Edison.

The two companies say they have lost about $6 billion because of soaring wholesale prices and a retail rate freeze in place while they move to a deregulated market.

Officials at the California Independent System Operator, which oversees the state's power grid, said action by Richardson was the decisive factor in avoiding outages Wednesday.

Some power company bosses said the real problem in California is deregulation itself.

"Deregulation has to be scrapped in California. The way it's been done here is a mess," said John Bryson, chief executive officer of Southern California Edison.

Southern California Edison officials said the company is practically broke because of deregulation, a plan they say was forced on them by the state.

Consumer watchdog Rosenfield doesn't buy it.

"Is that what they're telling you guys? Oh, that's a total lie," he said.

Rosenfield said the utilities had hoped to make money from deregulation, but the gamble didn't work — the real winners are the power plants. Now in private hands and selling power at exorbitant rates — as much as 3,900 percent higher than last year — the power plants charge the utilities rates that the utilities, under law, can't pass on to customers.

But they're still looking for a way to make customers pay, Rosenfield said.

"I think what the utility companies are doing here is playing a giant game of chicken. They're threatening to go out of business in order to get someone to force the ratepayers to pick up the tab," he said.

Other consumer advocates agree. They say Edison was a leading supporter of the 1996 deregulation law and consumers shouldn't have to cover the company's debts.

"The ratepayers are the innocent victims of deregulation and should never pay for another bailout of the utility companies," said Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

California's power market has been hit for months by tight supplies and price spikes. Deregulation, cold weather and rising power costs have been blamed for the most recent problems.

Wholesale power costs have been soaring, due in large part to skyrocketing prices for natural gas. Wall Street is worried about utilities' economic health, and Heller's group is urging the state to seize and run the strapped $20 billion electricity system.

Ironically, as all this unfolds, more than 40 other states are considering energy deregulation. California may prove to be a hard lesson for them. The state's only real hope now is that federal regulators order the power plants to drop rates before some utilities go bankrupt.

http://cbsnews.com/now/story/0,1597,221065-412,00.shtml

-- Martin Thompson (mthom1927@aol.com), December 15, 2000

Answers

U.S. Prepares New Rules to Stop Calif. Blackouts By Patrick Connole Dec 15 12:38pm ET

WASHINGTON (Reuters) - The federal government was due to issue new regulations on Friday aimed at keeping the lights on in California, after tight electricity supplies and skyrocketing prices pushed the power grid in the nation's most populous and richest state to the brink of collapse.

California's experiment in deregulating its electricity market has drained some $8 billion from the cash reserves of two major utilities in recent weeks. It has also forced warnings to consumers to turn off Christmas lights.

The issue has raised questions about how California, whose economy is the world's sixth largest, can satisfy the thirst for growing amounts of electricity by technology-focused Silicon Valley and other booming businesses.

The Federal Energy Regulatory Commission (FERC), an independent agency whose five commissioners are appointed by the president, was to meet at 3 p.m. EST to issue a plan to fix California's problems.

A key issue will be whether FERC decides to impose a price cap on California wholesale rates for electricity bought in the spot market and if so, at what price, industry experts say.

``The question is, at what price do you allow the lights to go out in California?'' said Mark Stultz, a spokesman for the Electric Power Supply Association. ``There is clearly some division within the commission about what to do.''

Representatives from the nation's publicly owned power industry said the commission should review its investigations into market power abuses in the state.

``In its investigations the FERC gave short shrift to both the possibility of vertical and horizontal market power, and failed to take into consideration the significant transmission congestion that allows some of the generation owners to dominate markets,'' according to the American Public Power Association, a Washington D.C.-based trade group.

PRICE CAP ON WHOLESALE POWER?

FERC, a little-known agency that usually focuses on obscure issues such as pipeline certificates, has been urged by California Gov. Gray Davis to jump into the state's power mess and limit wholesale prices at $100 per megawatt hour.

That would benefit state utilities that have been forced to pay more than $1,400 per megawatt hour on the spot market for immediate supplies. One year ago, the utilities were paying about $35 per megawatt hour for power.

Such a price cap would bring an abrupt halt to the profits enjoyed by independent power generators and marketers.

Sen. Barbara Boxer, a Democrat, asked the Justice Department earlier this week to investigate if there was price-gouging in the California market.

``While this constrained supply provides handsome profits to generators and marketers, its implications erode any hope of ratepayer relief and threaten the financial integrity of California's investor-owned utilities,'' Boxer said.

FERC is also expected to create independent oversight boards for the California Independent System Operator (ISO) and California Power Exchange, each of which help balance supplies in the state and act as auction houses for buying power.

The agency began drafting proposals several months ago, following a similar spike in summer electricity prices in California. In a draft proposal last month, FERC found no evidence of abuse of market power but did conclude ``unjust and unreasonable'' prices were charged for bulk wholesale power.

FERC proposed to eliminate the need for the three largest California utilities -- PG&E Corp's Pacific Gas and Electric, Sempra Energy's San Diego Gas and Electric, and Edison International's Southern California Edison -- to have to sell power to, or buy power from the California Power Exchange.

FEDERAL GOVT TAKES ACTION

California's problems deregulating the industry have already prompted emergency action by the Energy Department.

To keep the lights on in the state, Energy Secretary Bill Richardson announced Wednesday that the federal government would require all generators and marketers to sell power to California utilities at set prices.

That will bring some relief to California's two biggest utilities, which have drained their cash reserves of $8 billion in recent weeks paying for power. Pacific Gas & Electric and Southern California Edison have urged state regulators to allow them to pass through higher costs to consumers -- an action not permitted until 2002, under California's deregulation law.

The state deregulation law was adopted in 1996 when electricity supplies were plentiful.

Since then, Silicon Valley's thirst for power has increased exponentially. By one estimate, a Web hosting center uses 10 times the amount of electricity of an ordinary office building the same size.

California's strict environmental rules mean that no new power plants have been built in the state for a decade.

http://www.siliconinvestor.com/headlines/general/20001215/261501.html

-- Martin Thompson (mthom1927@aol.com), December 15, 2000.


I am becoming more confused on this situation.Where is the authority of Richardson and the FERC to make these regulations. I must be missing something or my old brain is shedding to many cells lately.

-- Martin Thompson (mthom1927@aol.com), December 15, 2000.

Martin,

You're not missing anything. It's just to many chefs in the kitchen makes for a foul flavored soup.

I think the power companies will need to suffer for what the foisted upon the citizens.

-- (Perry@ofuzzy1.com), December 15, 2000.


On the question of the authority of FERC - they have it. We have been largely unaware of it because FERC has chosen to rule with a very light hand over the last decade or so. The only reason you would be aware of their potential scope would be if you were involved in the day to day operations of something like a municipally run hydro generation source - in those cases FERC still had total jurisdiction over rates and reliability requirements last I knew.

But on this issue - let's not forget that the entire directive that state utility commissions enact rules to deregulate came from FERC in the first place. FERC also has oversight over a number of the parts. Every independent power generator has to get an approval from FERC based on their determination that their ratepayer impact was fair as part of their license package. (Lots of room to argue about the quality of that determination, but nonetheless it must be made.) FERC is also supposed to consider reliability for both indendents and power exchange systems between utilities regulated by state PUC's.

And it goes on, if you look back far enough. FERC is now basically doing what they should have done earlier - get in to try and mitigate the mess they caused. (In my own opinion)

-- Celia Murray (celiaam@aol.com), December 18, 2000.


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