Count up the losses of each wasted week

Sunday, May 6, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/05/06/ED105887.DTL

IN APRIL, California spent an average of $458 million per week to buy electricity. The figure will likely climb as hot weather drives up energy use.

This summer, more than 30 days of rolling blackouts are expected in Northern California. The region's major utility is in bankruptcy court. Southern California may get 44 days of interrupted electricity while its power provider fends off creditors.

The power market is plainly broken. It's a dangerous and unpredictable disaster with the potential to darken stoplights and close factories.

A colossal gamble on quasi-deregulation has failed, leaving California open to exploitation and disorder from a runaway open market. The state has ended up with the worst of both worlds: ill-conceived rules that favor powerful energy traders.

The power crisis continues to build to seemingly unsolvable heights. But there are significant steps that can tame the problem in the short run.

Some actions already taken should pay off. After Gov. Gray Davis grudgingly gave in, rates will begin rising 30 percent. This change should boost conservation from thrifty users and bring monthly power bills into the real world, not the artificially low levels set by a deregulation law passed in 1996.

The higher bills should also stop the bleeding for major utilities. These firms were obliged to buy power at rising rates while limited to 1996 levels in selling to customers.

A huge financial burden remains. The Legislature should approve a $12.5 billion bond measure, the largest in state history. The bond proceeds will refund the state for past and future power buys it must make on behalf of credit-weakened utilities. The borrowing will be paid back on future power bills. The Assembly is due to vote on the bond package tomorrow.

The bond measure will be a financial bulwark against future damage. But it addresses only one part of the problem. Soaring costs on the power that California must buy each day need to be controlled.

Under deregulation, the so-called spot market for daily power purchases was designed as a way to introduce competition that would hold down energy costs. But this strategy has reversed: soaring demand driven by population and economic growth has driven up the cost tenfold or more.

Generators can withhold needed power until peak prices are reached. The cost of producing power has nothing to do with its sale price. Several investigations are under way to determine whether California is getting rolled by this buccaneer behavior.

When a handful of companies have a stranglehold on a vital commodity, a windfall profits tax makes sense. A malfunctioning marketplace serves only the suppliers, not buyers with few alternatives. A windfall profits levy acts as a restraint against market manipulation.

Another answer to runaway prices is temporary caps on wholesale electricity costs. Under this plan generators would be limited in what they can charge California. The Federal Energy Regulatory Commission has adopted loose-fit maximums after enormous pressure was put on the reluctant federal agency by California and Oregon politicians. The FERC restraints, tame and limited as they are, are a first step that should be expanded.

The FERC move may be as much as California can expect from Washington. The Bush administration has repeatedly rejected calls to intervene or stabilize California's lop-sided market. Government controls will chase away investment in new power plants, according to Bush.

The president is right in saying that more supply -- power plants and efficient transmission lines to transport electricity -- is needed. But it will take years to achieve this balance in the form of new plants.

After a decade of no construction, California is already on a crash course to build power plants. Nine plants are under way with enough output to light 6 million homes. However, the start dates of these generating facilities are stretched over the next two years, with the first batch not expected to begin until late summer, when the rolling blackouts have long since crested.

The mantra of more supply and free-market balance can't work in today's chaos. California needs legal safeguards against the abuses of the energy market. Sacramento should pursue a windfall profits tax. Washington's refusal to completely cap energy prices will only worsen the power crisis.

Until Sacramento and Washington move more forcefully to stop the gouging, California will continue to squander tens of millions of dollars each day to subsidize electricity purchases. There must be a million better ways to spend the money than to stuff the pockets of the generators and middlemen who are showing no shame in exploiting a crisis.

-------------------------------------------------------------------------------- Consider the alternatives... Want to know what California could do with $458 million it now spends each week buying electricity? Here are ten items that each add up to the weekly power bill: 1. A new University of California campus. A tenth campus planned for Merced has an initial price tag of $350 million.

2. Mental health care for 20,000 untreated homeless living on the streets statewide, plus health coverage for 174,000 low-income adults, and 250,000 nursing home patients on state aid.

3. One power plant for 880,000 homes.

4. An extra lane on a new Bay Bridge for bicyclists, walkers and service vehicles.

5. Pollution clean-up for Lake Tahoe, coastal beaches and buyouts of 5,000 smog-spewing diesel engines used on farms.

6. 217 miles of repaved freeway.

7. Operation of San Francisco International Airport for a year.

8. The yearly salaries of 8,400 police officers and 10,500 teachers, plus construction of 35 elementary schools.

9. 19,742 California Highway Patrol cars.

10. A new baseball stadium in downtown Oakland with $100 million left over.

-- Martin Thompson (mthom1927@aol.com), May 06, 2001

Answers

The cited list of alternatives foregone is actually what California must FORFEIT for each week that this power pricing problem persists. Come summer, it will get worse; roughly double or worse. By summer's end, California's ability to build, or even even maintain all the cited infrastructure items will be gutted. The cascading effects will be awesome, far reaching, and long lasting. How much longer will it be before the Y2K Bug Flood "crests"? And how high will the "crest" get? Before it's all over, the Y2K outcome could still hit what was described as a "medium case" outcome by 1999 standards.

Iatrogenesis, however, is causing great augmentation, which was not expressly cited in the 1999 Navy War College "Flood" model. Iatrogenesis (additional human stupidity and/or opportunistic malice or greed) is shown expressly in the "Ice Storm" graphic. The "Flood" graphic doesn't expressly show it. A more accurate depiction of the "Flood" graph would rotate the "Ice Storm" graphic to orient it like the "Flood" graphic. The "direct Y2K failure" level is low, but very persistent over time, peaking about January 2001. The "Iatrogenesis" is the second level, lagging direct Y2K failures only slightly, and with far higher amplitude. And, the "cascading effect" is lagging both greatly, and the line is left "dangling" at a very high level into 2002, to depict the uncertainty as to whether the "Flood" will crest and then recede, or whether the critical mass needed to trigger InfoMagic's "devolutionary spiral" will be reached.

The referenced graphics are on the Navy War College's Y2K study website, which is http://www.nwc.navy.mil/dsd/y2ksited/y2ksite.htm at sublink http://www.nwc.navy.mil/dsd/y2ksited/y2krep3.html

-- Robert Riggs (rxr.999@worldnet.att.net), May 07, 2001.