Assembly Passes Emergency Bill to Make State an Electricity Middleman
The Washington Post
Reeling from the nation’s most serious energy crisis, California’s Assembly late tonight passed emergency legislation to keep the state’s two biggest utility companies solvent and to avoid rolling blackouts.
But wholesale power suppliers are balking at the terms of the legislation, which calls for the state to act as a middleman in buying power for the debt-ridden utilities. The wholesalers say the prices the state is discussing are far too low.
Ignoring those warnings, Assembly members passed the bill with overwhelming support after several hours of debate. The vote occurred just before a tractor-trailer rig slammed into the Capitol and caught on fire, forcing evacuation of the building. The legislation now goes to the state Senate.
As the legislators debated, one of the state’s big utility companies took a giant step closer to bankruptcy.
Southern California Edison announced it was not able to pay $ 366 million that it owes to power providers for energy it has passed along to customers.
That announcement was followed by a decision by Wall Street’s bond rating agencies to downgrade Southern California Edison‘s debt obligations to “junk bond” status — which makes it difficult and expensive for the company to borrow money or get credit. It also allows the utility’s banks to demand immediate payment for outstanding debts, which could send the company rushing for bankruptcy protection.
Today, the state also received a reminder of just how dire its electricity supply-and-demand predicament keeps getting. For the second time since last week, authorities here took the rare step of declaring a Stage 3 statewide alert because power reserves were dwindling to dangerously low levels. A Stage 3 alert means that reserves have fallen below 1.5 percent and requires consumers with agreements to reduce electricity use to do so.
The immediate problem, most players agree, is that when California deregulated its energy market in the late 1990s, it allowed wholesale prices for electricity to fluctuate based on the market, while it continued to cap the prices the utility companies could charge retail customers.
As the price of wholesale electricity in California soared in recent months, the utility companies could not pass along those added costs to consumers.
During another tense, desperate day for politicians and utility officials in the nation’s most populous state, lawmakers debated a hastily crafted bill to give the state authority to purchase electricity directly from wholesalers around the country through low-rate, long-term contracts.
The state needs to step in, Gov. Gray Davis (D) argues, because the utility companies are broke and their credit is no good.
Under the terms of the bill, the state would resell the power to consumers or to the utilities, which are staggering under $ 12 billion in uncompensated costs.
Assembly Speaker Robert Hertzberg (D) called the bill “the next logical step” for the state. “This measure will help assure California consumers reliable power at reasonable prices,” Hertzberg said.
But even before the proposal came up for a vote tonight, consumer groups and wholesale energy suppliers began questioning whether it would ease the crisis — or make it worse.
The plan, put together by Davis and legislative leaders, would allow the state to buy power at 5.5 cents per kilowatt hour in long-term contracts that would typically run from one to five years. But some wholesalers suggested strongly that 5.5 cents is too low. In recent weeks, wholesale electricity in California has been selling for as much as 30 cents per kilowatt hour.
The average American household uses about 500 kilowatt hours per month.
Richard Wheatley, a spokesman for Reliant Energy of Houston, which owns five power plants in California, said it would not make sense for the company to sell power at such low rates.
“Can we continue to run our plants at 5.5 cents a kilowatt hour? The answer is no,” Wheatley said.
The spokesman said that Reliant‘s plants run on natural gas, which has tripled in price in the last year.
The Western Power Trading Forum, which represents generators who supply California power, called the legislation’s price caps “ridiculously low” and said companies may be wary of agreeing to send power to the state under those terms.
“As much as people want to help the situation, and they do — they don’t want blackouts — they’re still waiting to see some sense of reality check from the state,” said Gary Ackerman, a spokesman for the association. “They don’t want to hear any more fairy-tale economics. . . . The action the state winds up getting from this plan could be a lot less than what it needs to fix the problem.”
Consumer advocates also were hostile to the plan, but for different reasons.
“This is a runaway train that is veering off the tracks,” said Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights, based in Santa Monica.
Rosenfield said that the state should not be in the business of buying and selling power, that the utility companies have made billions in profits, and that consumers should not bear the burden of greed by wholesale energy providers and blundering by California legislators and bureaucrats.
As lawmakers worked on the bill, the state experienced another power shortage partly because out-of-state suppliers were reluctant to send the state electricity.
“If they’re not going to get paid,” Ackerman said, “why generate?”
Staff writer Peter Behr in Washington contributed to this report.
