California regulators, utilities look to feds to ease woes

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The Associated Press

A federal regulator is promising strong action to ease California’s electricity woes after the state’s second brush with blackouts in a week.

“We believe in competitive markets,” said James Hoecker, chairman of the Federal Energy Regulatory Commission. “We believe we can make them work, but they have to work responsibly and they have to produce reasonable prices.”

The commission will take “strong action” and “be part of the solution and not part of the problem,” he said Wednesday. FERC is scheduled Friday to order changes to try to correct the state’s power problems.

Gov. Gray Davis wants the commission to rein in skyrocketing wholesale electricity prices, in part by imposing a regional price cap. Washington state Gov. Gary Locke urged similar action in a letter to President Clinton, Energy Secretary Bill Richardson and Hoecker.

The state narrowly escaped rolling blackouts Wednesday after about a dozen suppliers demanded cash for electricity because of the shaky financial condition of two of California’s power-strapped utilities, Pacific Gas & Electric Co. and Southern California Edison.

The two companies say they have lost about $6 billion because of soaring wholesale prices and a retail rate freeze in place while they move to a deregulated market.

Officials at the California Independent System Operator, which oversees the state’s power grid, said action by Richardson was the decisive factor in avoiding outages Wednesday.

Richardson said he would order wholesalers to sell power to California at a price he deemed fair. He also asked two large Pacific Northwest power generating associations to send more power to California.

Several suppliers then agreed to sell electricity to California utilities on credit and the Bonneville Power Administration diverted 1,500 megawatts to California, the ISO said.

“It is not likely we will have any outages” for the rest of the week, said Kellan Fluckiger, the ISO’s chief operating officer. But he said the state was not “out of the woods” in the long run.

Fluckiger warned earlier that officials might have to interrupt power to as many as 4 million customers Wednesday afternoon and early evening.

California remained in a Stage Two alert Thursday morning. That alert was expected to continue throughout the day.

“The credit limits of utilities and what markets are willing to sell us have been reached and surpassed in many cases,” Fluckiger said. “There are questions about utility solvency.”

John Bryson, president and chief executive officer of Edison International, Southern California Edison‘s parent company, said the state should scrap the market structure set up by the 1996 deregulation law.

Under that law, Edison was required to sell its power generating plants in the Los Angeles area and now buys electricity at “indefensible” prices from the companies that own those plants, Bryson said.

“We need to reform and, where necessary, re-regulate California’s electric system” or Edison could be forced to ration electricity, Bryson said.

“We need a system of cost-based wholesale pricing where the majority of power is either generated by Edison for Edison customers, as it was before 1996, or is arranged and delivered under long-term contracts to Edison at stabilized costs,” he said.

Consumer advocates said Edison was a leading supporter of the 1996 deregulation law and consumers shouldn’t have to cover the company’s debts.

“The ratepayers are the innocent victims of deregulation and should never pay for another bailout of the utility companies,” said Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

California’s power market has been hit for months by tight supplies and price spikes. Deregulation, cold weather and rising power costs have been blamed for the most recent problems.

Wholesale power costs have been soaring, due in large part to skyrocketing prices for natural gas. Wall Street is worried about utilities’ economic health, and Heller’s group is urging the state to seize and run the strapped $20 billion electricity system.

Last Friday, FERC lifted price caps in California. Record wholesale power prices followed, and PG&E warned it was in financial danger.

Adding to the problems, the Northwest, heavily dependent on hydroelectric power, has faced low water tables and had to import electricity from California and other states.

An unprecedented Stage 3 emergency was issued last Thursday, meaning reserves fell below 1.5 percent. But the state fended off rolling outages by turning off two power-sucking water pumps.

A Stage 2 alert was declared Wednesday afternoon, the state’s second brush with blackouts. Power reserves fell below 5 percent and large commercial customers were asked to reduce power consumption.

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