Power Shortage Not Addressed CRISIS: Blackouts expected during the summer

David Lazarus, Chronicle Staff Writer Sunday, January 7, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/01/07/MN122396.DTL

With all the electricity rate increases, credit downgrades and threats of bankruptcy affecting California's cash-strapped utilities last week, one small fact was almost completely overlooked.

The state remains in the middle of one of its worst energy crises, and financial bailouts of Pacific Gas and Electric Co. and Southern California Edison are not going to remedy chronic power shortages.

All experts agree: This coming summer could be the make-or-break moment for California's beleaguered power grid, and blackouts are likely as electricity demand far outstrips available supply.

Making matters worse, lower-than-normal snowfall this winter means the state's dams will probably be operating below capacity in the months ahead, reducing available power even further.

Meanwhile, the need for consumers to conserve power grows more acute by the day, although little attention is being paid to this increasingly vital aspect of any solution to the current mess.

'SUMMER COULD BE WORSE'

"Next summer could be worse than anything we've seen so far," said Dan Richard, senior vice president of PG&E. "There's going to be a big gap between demand and available supply."

Blackouts, he said, could become an almost daily part of consumers' lives.

"Most of us don't want to think California could be turned into a Third World country," Richard said. "But it looks that way."

Although the financial devastation of PG&E and Edison now occupies the time of state regulators and legislators, officials soon will be forced to turn their attention to the bigger and much more complex issue of how to address California's dysfunctional energy market.

The state's 1996 deregulation legislation was intended to reduce electricity prices by spurring construction of new plants and increasing competition among power generators.

It didn't work out that way. Instead, no major plants have been built in the state for the past decade, and electricity purchased by utilities still comes from only a handful of providers.

The power generators, many of which are based in Texas, have profited to the tune of nearly $12 billion in additional revenues since wholesale electricity prices skyrocketed last summer.

"The generators are gouging us ruthlessly," said Nettie Hoge, executive director of the Utility Reform Network in San Francisco. "In fact, if they were smart, they'd slow down. Otherwise, they'll kill the goose that lays the golden eggs."

Gov. Gray Davis and others have been calling on federal regulators to help stabilize wholesale power prices by capping the amount generators can charge, at least until California's utilities can lock in long-term contracts and thus prevent customers' bills from spiking on a monthly basis.

MARKET COULD SELF-CORRECT

But the Federal Energy Regulatory Commission has resisted all such requests,

insisting that California's energy market will self-correct itself over time as supply and demand come into balance.

A federal court on Friday rejected a lawsuit from Edison demanding that federal authorities cap wholesale rates. The court said Edison "has not demonstrated that its right to this relief is clear and indisputable."

The utility responded by saying it will be forced to lay off 1,450 workers over the next few months.

"The commission recognizes the leverage that scarcity gives sellers of electricity and the potential for strategic manipulation of the market," said energy commission Chairman James Hoecker. "It needs to develop better ways to investigate and act on abuses of market power.

"However," he said, "no amount of enforcement activity or legislation or litigation alone will soon alleviate the problems faced in this market."

Hoecker hopes that the various players in California's energy crisis can be brought to the table to hammer out lasting solutions. Any other course, he said, "will continue to waste money and time."

There is precious little left of either.

PG&E and Edison say they are now more than $11 billion in debt as a result of not being able to pass along to customers their wholesale energy costs.

Meanwhile, construction of enough new plants to meet California's rising energy demand could run well over $10 billion -- providing someone wants to take the risk of committing to new projects before the regulatory landscape becomes clear.

And the clock is ticking toward the hot summer months, when millions of air conditioners are switched on throughout the state and the power grid is pushed to the breaking point.

"We are likely to run into serious shortages of power this summer if we don't back off of consumption during peak hours," said Severin Borenstein, director of the University of California Energy Institute in Berkeley. "So far,

there has been no effort to do that."

CALL TO CONSERVE IGNORED

It has been decades since Californians were called on to aggressively conserve energy in the face of crisis conditions.

While the utilities and consumer groups have been urging more conservation measures for months, the public generally has not viewed the current situation as being comparable to, say, the energy crisis of the 1970s when oil prices went through the roof.

That will have to change.

"Conservation is essential," said Harry Snyder, senior advocate for Consumers Union in San Francisco. "It's a major part of the answer."

Consumers are being advised to turn thermostats down to 68 degrees as a hedge against rising heating bills and to keep electricity usage limited by switching off lights and appliances whenever possible.

PG&E also encourages customers to:

-- Clean or replace furnace and air-conditioner filters regularly.

-- Set the water heater thermostat at 140 degrees, or "normal," if one has a dishwasher, or at 120 degrees, or "low," if not.

-- Close the damper when the fireplace is not being used.

-- Close windows when heating or cooling.

-- Wash only full loads in the dishwasher and use the shortest cycle that will get dishes clean.

Snyder said Californians grew sloppy in their conservation habits during the economic boom of the 1990s.

"Once prices start going up," he said, "consumers will be reminded every month of the need to conserve."

E-mail David Lazarus at dlazarus@sfchronicle.com.

-- Martin Thompson (mthom1927@aol.com), January 08, 2001