Energy Secretary Warns of Lay-Offs From California Power Crisis

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Energy Secretary Warns of Lay-Offs From California Power Crisis By Liz Skinner

Washington, Dec. 19 (Bloomberg) -- Energy Secretary Bill Richardson said thousands of utility workers could be laid off and consumers could face more power shortages if a solution to California's electricity crisis isn't found quickly.

The owners of California's two biggest utilities, PG&E Corp. and Edison International, have warned they could run out of money to buy power if electricity prices stay high. The companies say they have spent more than $8.1 billion buying electricity this year that regulators won't let them pass on to customers.

Power generators are becoming concerned utilities won't be able to pay them for power, and that could prompt them to cut the amount of electricity they send to California, Richardson said.

``Southern California Edison is warning that thousands could be laid off, maintenance of essential utility facilities could be delayed, and California's electricity supplies could be threatened if generators and marketers become concerned that they may not get paid because of credit issues,'' Richardson said. Edison International owns Southern California Edison.

Richardson spoke before a closed hearing in Washington on the California electricity crisis that included utilities, power producers, state officials and regulators.

The meeting today is designed to develop a plan to encourage utilities to buy more power in advance through the sale of forward contracts, which deliver electricity at an agreed-on price and date. Industry observers say forwards should help bring down prices, which have surged as much as 100-fold in the state this summer and winter because of a shortage of power plants and high natural gas prices.

Richardson, who will soon be leaving office with other Clinton appointees, said he would also like participants in the California electricity market to agree on a regional price cap for western states.

``I support a regional rate cap because I believe it is the only way to bring sanity to the electricity markets in the short- term,'' Richardson said.

Richardson said he'll meet Wednesday in Denver with governors of several Western states, including John Kitzhaber of Oregon and Bill Owens of Colorado, and utilities and power suppliers to develop a regional solution. Today's meeting, which Richardson didn't stay for, will focus on California.

California has a ``deregulation effort that needs to be restructured a bit.'' Richardson be on the verge of a liquidity crisis.''

On Friday, FERC ordered California's utilities to buy more power in advance so they don't have to buy higher-cost power on the higher-priced hourly and daily spot markets.

Richardson said more advance purchases of power ``will go a long way towards alleviating the situation.''

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOj_TDxbjRW5lcmd5

-- Martin Thompson (mthom1927@aol.com), December 19, 2000

Answers

Calif power crisis worsens, utilities run out of cash December 19, 2000

By Patrick Connole

WASHINGTON (Reuters) - California utilities, running out of cash due to rocketing power costs they cannot pass on to consumers, may be forced to lay off thousands of employees, Energy Secretary Bill Richardson said Tuesday.

The financial crisis confronting PG&E Corp and Edison International stems from runaway prices they must pay for wholesale electricity to keep the lights on throughout the nation's richest and most populated state.

California has been under the daily threat of power blackouts in recent weeks.

``I am concerned that we may be on the verge of a liquidity crisis,'' Richardson said at a meeting of U.S. regulators, California utilities, and California state officials to discuss the state's dire electricity situation.

Both utilities have been forced to pay more than $1,400 per megawatt hour for wholesale electricity on the spot market, compared to $34 per megawatt hour one year ago.

Thousands of employees at California utilities could be laid off because of the spiraling costs, Richardson said. And repairs and maintenance at key facilities may have to be curtailed because of the lack of cash, he added.

PG&E SAYS DIVIDEND AT RISK

The parent of Pacific Gas & Electric said late on Monday its quarterly dividend of 30 cents per share was at risk because of soaring wholesale power costs. The giant utility said it was unable to recover some $4.5 billion in wholesale power purchases through the end of November.

Under California's deregulation rules, PG&E and Edison International's Southern California Edison are not permitted to pass through all their rising energy costs to consumers. When the state adopted its pioneer deregulation law in 1996, energy costs were relatively low.

But heavy demand from California's Silicon Valley, unexpectedly tight supplies of electricity from hydropower facilities in the west, and a run-up in natural gas prices -- the fuel used by many utilities -- has pushed the state dangerously close to ordering rolling black- outs.

Richardson said California's electricity supplies could be threatened if out-of-state generators and marketers who sell to the two major utilities become concerned that they may not be paid for their power because of credit issues.

``We have some serious problems in California,'' he said during the meeting held at the Federal Energy Regulatory Commission headquarters. The state's electricity supplies remain tight and natural gas prices, while moderating somewhat in recent days, are still too high, he said.

BUSH CONCERNED ABOUT ENERGY CRISIS

California's precarious situation has also caught the attention of president-elect George W. Bush, who expressed concern on Monday that a U.S. energy crisis may be looming.

A Bush aide said soaring natural gas prices and the U.S. dependence on foreign oil imports would push a broad, comprehensive energy policy to the top of the former Texas oilman's agenda. During the campaign, Bush endorsed the idea of opening up an Alaskan wildlife refuge to oil and gas drilling.

Bush has not yet indicated who is likely to replace Richardson as U.S. energy secretary.

Richardson said he spent two hours on the telephone on Monday night discussing the crisis with U.S. Sen. Dianne Feinstein and California Gov. Gray Davis, both Democrats.

Last week, Richardson invoked rarely used emergency powers and ordered more than a dozen independent power generators and marketers to continue selling electricity into California.

That action was followed by an order from the Federal Energy Regulatory Commission, an independent agency with five commissioners appointed by the president. FERC ordered an overhaul of California wholesale markets, including provisions allowing utilities to negotiate long-term supply contracts. Such contracts were barred by the state's deregulation law in hopes of adding more competition and consumer choice.

FERC CRITICIZED FOR NOT DOING ENOUGH

Richardson criticized the FERC ruling, saying it failed to take bolder action such as setting a cap on wholesale power prices throughout the western region.

``I support a regional rate cap because I believe it is the only way to bring sanity to the electricity markets in the short term,'' Richardson said.

Richardson was to meet with western governors, regulators and utility executives on Wednesday to discuss the crisis.

FERC also decided to free the states' utilities from selling power into the California Power Exchange, the coordinating center created for the state's three large investor-owned utilities to trade power.

http://www.individual.com/story.shtml?story=d1219121.901

^ REUTERS@

-- Martin Thompson (mthom1927@aol.com), December 19, 2000.


Moderation questions? read the FAQ