As California enjoys lull in energy storm, it also faces repeat of deregulation debate

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Associated Press

SACRAMENTO, Calif. — It looks like California residents might escape a summer of rolling blackouts, and enjoy a period of calm after the energy crisis that plunged millions of people into the dark and sent the state’s largest utility into bankruptcy.

That’s not to say there aren’t energy concerns in the state. California needs to figure out how to reshape its energy market before two events come to pass around 2009 – the expiration of many of the long-term energy contracts that have kept rates stable, and the expected retirement of a large number of power plants. And, in the meantime, Californians are forced daily to cope with
electricity rates 20 percent higher than they paid before the 2000-01 crisis.

Randy Rowse, owner of the Paradise Cafe in Santa Barbara, said he can only cut back on labor costs and personnel when rates are so high. “It’s one of the few things you can do.”

But he’s also changed how he runs his business to lower energy use and costs. He bought more efficient refrigeration systems, cut his use of air conditioning and heat and “we use airpods instead of heating elements for coffee,” referring to the Thermos-type containers. “It saves a lot of energy, and it keeps the coffee from cooking.”

Such conservation measures give the Independent System Operator, manager of most of the state’s power grid, more flexibility in what is expected to be a summer with thin power reserves.

“We should be OK,” said ISO spokesman Gregg Fishman, adding that he’s cautiously optimistic about the summer electricity outlook despite a Stage 1 power emergency last month, caused by high demand during unusually hot weather.

A Stage 1 alert is called when the state’s power reserves fall below 7 percent. That allows grid managers to access emergency resources to maintain its operating reserves.

Millions of Californians reduced their electricity use during the 2000-01 crisis, and while the impact was hard to measure, Fishman said many of those conservation measures continue today, contributing to energy security.

The crisis began in May 2000, when wholesale prices in the newly deregulated electricity market rose sharply due to a shortage of hydroelectric power, market manipulation by energy traders and a booming economy that demanded more power.

California’s utilities ran up huge debts because the deregulation scheme barred them from charging customers the true price of power. The unstable market also led to six days of rolling blackouts in 2001, the bankruptcy of Pacific Gas and Electric Co., and billions in state money spent on power purchases.

Since the crisis, the Legislature has toyed with ways to restructure the state’s electricity market, but the current budget crisis and other problems have pushed their plans aside.

What is being debated now, said Doug Heller of the Foundation for Taxpayer and Consumer Rights, are bills that are “still driven by the idea that we should try to regain a deregulated marketplace.” They also contain elements of the flawed 1996 deregulation plan, such as the ability to let large electricity users shop around for their electricity.

So-called “direct access” is in the two major bills under consideration now. One proposes a “hybrid” system – allowing large energy users to opt out of utility service for a competitive “direct access” market.

A competing bill would also allow direct access for large customers, but would put more restrictions on when they could jump between a utility and a competitor.

State lawmakers halted direct access, a cornerstone of the deregulation law, in September 2001 to stop customers from fleeing utilities for lower-priced competitors and leaving the remaining customers to repay the billions in energy debt in the form of higher rates for years.

When it comes to building new power plants and finding other energy sources, the state needs to determine “who builds, who buys and for whom,” said PUC commissioner Loretta Lynch. “And to be smart about it, we need to determine it this year.”

The bulk of the long-term power contracts begin expiring around 2009 – which is around the time a number of California’s aging power plants are set to retire. And while the state has made progress in building new power plants, adding about 10,000 new megawatts since 2001, Michael Peevey, a former utility executive and now president of the California Public Utilities Commission, said “we need to do more.”

“That’s where we have to sort out what the market looks like in the future,” he said. “The uncertainty doesn’t serve anyone.”

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