State to Buy Electricity Directly From Suppliers

The Washington Post

California lawmakers today reluctantly approved a $ 10 billion plan that authorizes the state to try to solve its dire energy crisis by buying much of the electrical power it needs directly from suppliers for the next decade.

The fateful step, which Gov. Gray Davis (D) swiftly signed into law, effectively ends California’s two-year experiment in partial electricity deregulation, which has nearly bankrupted its two largest utility companies and has twice forced the state to impose rolling blackouts because it lacked power.

Many lawmakers called the emergency legislation, which allows the state to issue bonds to buy electricity on the wholesale market, their only prospective escape from a predicament that is disrupting the state’s nationally important economy and depleting its treasury.

“This is a gigantic leap forward for California,” Davis said. “This measure offers our best hope of avoiding electricity rate increases in future years.”

The vote took place as California endured another day of power shortages so severe that officials who manage the state’s beleaguered electrical system again had to issue a Stage 3 alert, meaning that supplies had dipped to dangerously low levels. That order, once rare, has not been lifted in two weeks.

For Davis and the state legislature, today’s action is only one important piece of a complex puzzle.

To recover from the energy crisis, the state still must find energy suppliers willing to sign long-term agreements at rates lower than what is available on the open market. In the meantime, California is spending roughly $ 40 million a day securing emergency power from suppliers unwilling to sell it to two debt-ridden utilities in the state, Pacific Gas and Electric Co. and Southern California Edison.

The legislature also is still debating a plan to cover most of the utilities’ debts, which may exceed $ 10 billion, with taxpayer money in exchange for stock in the companies. But utility officials are bracing to fight that proposal.

State energy officials also fear that California’s problems may have only just begun, because demand for electricity in the West is outstripping supply and because usage peaks in the summer.

Today’s vote could nevertheless provide the state with a more stable power supply. “We have given the governor the tools he needs to end this crisis,” said Assembly Speaker Robert Hertzberg (D).

But some lawmakers denounced the action, in part because it could lead to higher monthly electricity bills for many Californians. The Assembly failed to pass the legislation on its first vote but narrowly approved it hours later.

Under the terms of the measure, the state will buy power directly from suppliers, then resell it through the utilities to residents and businesses. Rates for consumers who keep their energy use at or below state-recommended levels would stay relatively fixed. But consumers who do not conserve as much and exceed those levels could be exposed to billing increases that would be used to pay the cost of the state’s power purchases.

That provision nearly sunk the legislation because it created a rift between lawmakers along California’s coast, where the climate is almost always moderate, and those in the state’s inland and desert regions, where heat often requires much more power consumption.

Rep. Rod Pacheco, a Republican from the desert city of Riverside, called the measure “unconscionable.”

“It is an unlimited rate increase for an unlimited duration for an unlimited amount of money,” he said.

Some consumer groups also reacted with outrage to the legislature’s decision.

“This bill offers ratepayers no protections,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. “And it’s hard to imagine how the state is going to negotiate for cheaper power when they’ve just announced that they’re throwing open the doors to the state’s treasury.”

California had embraced electricity deregulation in the hope that it would increase power supplies and lower consumer prices.

But the plan it designed did neither. Utility companies were forced to sell many of their generating plants and buy wholesale power on the open market. But rates to consumers were capped. So when wholesale power prices began soaring recently, the companies could not pass those costs on to consumers.

Shortly before he signed the $ 10 billion power-buying bill into law, Davis also announced an extensive energy conservation plan for the state. As part of it, he issued an executive order that requires all retailers in California to reduce their outdoor lighting substantially during nonbusiness hours.