Supply shortage worsening

The Stockton Record

SACRAMENTO — Gov. Gray Davis on Tuesday began personally negotiating the scope of a rate increase proposed by the state’s major utilities, while a critical power-generation shortage once again threatened to cause the collapse of California’s electricity grid.

“We’re talking about minimizing the increase in rates,” said Davis’ press secretary, Steve Maviglio. “It’s no secret that everyone is going to feel some pain from deregulation that the governor inherited.”

In the meantime, the supply shortage that sparked talk of a rate increase was worsening.

Kellan Fluckiger, chief operating officer for the Independent System Operator, said his organization for the first time Tuesday invoked emergency powers authorized last week by U.S. Energy Secretary Bill Richardson and ordered Pacific Northwest power plants to deliver electricity to California. He said the ISO may have to direct the utilities to begin rotating power outages, called rolling blackouts, if the generators fail to provide additional power to make up for the 2,000- to 3,000-megawatt shortage anticipated over the next few days. One megawatt is the amount of power used by a typical household in a month.

A critical shortage of power generation has caused wholesale electricity prices to soar throughout the West, but particularly in California. So far, Pacific Gas and Electric Co. and Southern California Edison have not been able to pass those costs on to customers because of a state-imposed rate freeze, but the California Public Utilities Commission is tentatively scheduled to consider a rate hike during a meeting in San Francisco on Thursday.

Davis’ negotiations, however, are likely to have more effect on what residents will pay for electricity than any action by the PUC.

Maviglio said legislative leaders and the governor’s energy advisers believe the PUC cannot approve an increase without action by state lawmakers. Late Tuesday, Senate President John Burton and Assembly Speaker Robert Hertzberg were meeting with Davis to discuss a course of action when the Legislature reconvenes Jan. 3, their press secretaries said.

The governor has already called for a special session devoted exclusively to energy issues and reserved $1 billion of next year’s budget proposal for addressing the electricity shortage.

Maviglio said Davis spoke personally with Edison Chief Executive Officer John Bryson. Representatives for PG&E and the governor’s key staff members also attended the meeting. Together, the two utilities have paid some $10 billion more for electricity than they’ve collected from customers because of the state-imposed rate freeze.

Consumer advocates accused Davis of caving in to false claims of pending bankruptcy by the utilities. The Utility Reform Network said before wholesale rates started rising this spring, PG&E and Edison collected $17 billion more than they actually paid for electricity because the frozen rate was set artificially high.

The Legislature’s 1996 deregulation law allowed the utilities to collect that money to reimburse shareholders for noncompetitive investments that were made before the state deregulated the electric industry. Consumer advocates, however, say the utilities lobbied heavily for deregulation and should now pay the price for the failed experiment, not their customers.

“Giveaway Gray will deserve nothing less than the wrath of the voters if he forces consumers to pay for this mess,” said Doug Heller, spokesman for the Foundation for Taxpayer and Consumer Rights.

Davis has said that rate hikes are inevitable because of the Federal Energy Regulatory Commission’s refusal to set fixed prices for wholesale electricity. The commission instead ordered a series of reforms last week designed to encourage utilities to bring down costs by signing long-term power-purchase contracts rather than relying on the spot market run by the California Power Exchange.

Also Tuesday, the utilities and electricity sellers met before an administrative law judge in Washington, D.C., but no agreement was reached. Talks will resume today, PG&E spokesman Jon Tremayne said.

FERC set a benchmark price of $74 per megawatt-hour for five-year purchase agreements, or $20 per megawatt more than the wholesale-power rate currently charged on PG&E‘s bills.

Alan Vallow, director of city-operated Lodi Electric Utility, said that’s no bargain.

“I would choke right now if I signed a five-year deal for 74 bucks,” Vallow said. “I think I would hemorrhage on that. It’s so absurd, because three weeks ago we could have signed that same contract for ($53.) Just six weeks ago, we could have gotten it for $48.”

Lodi, however, was forced to sign a one-year contract with Enron to purchase power for $160 per megawatt hour. Vallow said that’s more than three times as much as the utility charges its customers, but fortunately Lodi gets the bulk of its electricity through inexpensive hydroelectric sources. He said the contract will enable Lodi to escape a rate increase for the time being, but eventually the high wholesale costs of power might have to be passed along to customers.

Residents in southern San Joaquin County who get their electricity from the Modesto Irrigation District will see their rate increase next month. The public utility recently approved a 10 percent increase, effective Jan. 1, to cope with spiraling wholesale rates, spokeswoman Maree Hawkins said. That rate increase was coupled with a new program that allows low-income residents to get a 15 percent price reduction, she said.