Greg LaMotte on California's energy crisis

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Greg LaMotte on California's energy crisis Greg LaMotte December 20, 2000 Web posted at: 4:39 p.m. EST (2139 GMT)

CNN Correspondent Greg LaMotte is reporting on the energy crisis in California.

Q: How dire is the energy situation in California?

LAMOTTE: The power situation in California is dicey at best. In essence, this is a cesspool for people who love conspiracy theories, because it would seem that all of the entities that could conspire to come together to create such a situation have come together.

We've got rising energy prices. We've got a state that went to deregulation in 1996 because of rising prices on the belief that the free market would take care of the situation and instead it's had the reverse effect for now. And we're entering winter.

Some plants were shut down for regular maintenance and others went off-line because they had reached their pollution limits for the year. And about 45 days ago, prices being charged by outside power suppliers began to rise big time. A year ago for instance, a megawatt at the wholesale level cost about 30 bucks an hour; today, that energy has gone to about $400 a megawatt hour.

These are the prices that are being paid by the utilities to bring power into the state to be able to supply it to the consumers. Under deregulation, these utilities aren't allowed to pass on their costs to consumers until 2002 or until they've paid off billions of dollars in past debt. So, for the most part, they are still under a price cap.

That makes it bad for the utilities. They've been unable to pass these costs onto the consumers and consequently two of California's biggest utilities are saying they are billions of dollars in debt and that they are going to go into bankruptcy if they don't get some help in the next few weeks.

Q: How legitimate is that possibility, that the utilities could go bankrupt?

LAMOTTE: If it's a scare tactic, they've got everyone fooled, because everyone we have talked with fully believe that these utilities are deeply in debt.

The biggest reason for the debt is the fact that the utilities have had to absorb billions of dollars in extra costs that they've had to pay out to get energy.

The utilities say that unless they can pass the costs onto the consumer in some way or get a bail out from the state, then they're going to go belly up. They're threatening tens of thousands of jobs would be lost.

At the same time, Southern California Edison just recently paid a stock dividend. So, that's got the ire of the consumer groups who are saying, If you're paying dividends, you can't be in too bad of financial shape.

The governor sure as heck believes it (that utilities are in bad financial shape). He is now under fire from consumer groups because he has met behind closed doors with these utilities and consumer groups are upset with him for not letting them in on the process.

Q: What was Energy Bill Secretary Richardson hoping to accomplish in Wednesday's meeting with the governors of Western states?

LAMOTTE: Richardson was meeting in Denver with several Western governors in hopes of getting them to agree to some sort of regional price cap on energy supplies, both electricity and natural gas.

The problem with natural gas is that its price has skyrocketed over the last month. Unfortunately, most of the power plants that exist in the West are powered by natural gas, so they're having to pay that increased cost and ultimately it looks like the consumer in California will get stuck with at least part of it.

One of the things that is going on, with the California utilities saying they're billions of dollars in depth and facing bankruptcy, a number of outside power suppliers ... have gotten very skittish about selling power to California. In fact, some were demanding cash for power. Last week, Energy Secretary Richardson ordered those utilities to continue supplying power to Southern and Northern California.

In addition, those suppliers are very upset with California because they have reciprocal agreements with the state. Those agreements basically say, 'We'll sell you and provide you with power in the summer time for air conditioning. You guys in return when its cooler in your neck of the woods can sell us electricity in the winter time to heat our homes in the Pacific Northwest.' That hasn't been working out, and those suppliers in the Northwest are upset about it.

http://www.cnn.com/2000/US/12/20/lamotte.debrief/

-- Martin Thompson (mthom1927@aol.com), December 20, 2000


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