Here’s what some California lawmakers see as a trump card in solving the state’s energy crisis: Gouge the public, lose your power plant.
Faced with growing bills and dwindling options, many Democratic lawmakers are pushing for use of emergency powers or eminent domain to force generators to negotiate lower wholesale electricity prices.
“Step one is to seize a few power plants,” said Senate President Pro Tem John Burton, D-San Francisco. “That would let (the generators) know we mean business.”
“There’s no negotiation when generators say ‘Pay us what we want or we’ll shut off California’s lights,'” said Phil Angelides, state treasurer. “We ought to levy an excess profit tax and, if they don’t take their foot off our throat, seize a plant or two to sober them up.”
The increasingly tough talk about seizing assets, while motivated by an immediate desire to extract concessions, fits into a longer-term push for California to produce some of its own electricity to boost supply and protect against spiraling prices.
Critics blast the notion of seizure, however, as a bargaining ploy or political grandstanding.
“It’s actually quite silly and a waste of time to consider these options,” said Gary Ackerman, executive director of the Western Power Trading Forum, an association of independent generators.
“Seizure would mean the state would pay top dollar for an Edsel – old, tired plants that are past their prime,” he said. “What happens if these people are wrong and they’re taking the people of California down a dead end?”
But others say the time is ripe for radical reform, with the state paying up to $50 million per day for electricity and facing prospects of rolling blackouts this summer.
“The generators will only respond when we take their golden eggs, the plants they own,” said Douglas Heller of the Foundation for Taxpayer and Consumer Rights. “They’re the ones cheating us and they’re the ones we must target.”
Lawmakers have raised the following two seizure possibilities, each aimed at ensuring that more electricity is available at lower than spot market prices:
– Take over private power plants, perhaps contract with utilities to run them, and let the courts decide what fair market price should be paid to the companies that now own them.
– Leave the plants alone, but seize their contracts with marketers, thus controlling where the power is sold while reducing price markups by eliminating the middleman in spot market transactions.
State Sen. Debra Bowen, D-Marina Del Rey, recently suggested a third way for California to acquire existing electricity assets, without seizing them: Purchase the entire Pacific Gas & Electric Co. in bankruptcy court.
Such a move could benefit the state and keep PG&E property out of the hands of private firms that already have too much influence over the electricity market, Bowen said.
All sides agree that takeovers would be an extraordinary, unprecedented intervention into California’s electricity industry.
But Burton said his support for seizures is “very serious.” The state could pay acquisition costs through revenue from electricity sales, he said.
“Christ almighty, people make money on power plants,” he said. “It ain’t like they’re loss leaders.”
Gov. Gray Davis hasn’t ruled out seizure of generators’ assets or acquisition of PG&E. But such possibilities raise a million questions, ranging from taxpayer exposure to technical issues regarding use of any asset acquired, spokesman Steve Maviglio said.
While Davis has not committed himself to seizure, he supports legislation – SB 6x – written by Burton and supported by Angelides that would create a public power authority to construct state-owned plants and help finance conservation and renewable-energy projects.
“The notion that we should let electricity be traded by profiteers like a sheer commodity is ludicrous and dangerous,” Angelides said. “Public power is the public’s defense against the greed and dysfunction of a market run amok.”
But Republican legislators, who have long opposed Davis’ efforts to buy a statewide electricity transmission, think the state would be making a big mistake by seizing private plants or building its own.
“There’s no reason to believe the state of California can run the power business or the transmission business as good as, or better than, the private sector,” said Assembly Republican Leader Dave Cox of Fair Oaks.
Soaring electricity prices have been due largely to high demand, scarce supply, extremely high costs for natural gas to run turbines, and financial risks tied to the instability of PG&E and Southern California Edison, industry officials say.
But state officials claim that market manipulation has contributed as well.
California’s Independent System Operator (ISO), which manages the statewide transmission grid, has accused power generators of overcharging Californians by $6.2 billion since last May.
In response, the Federal Energy Regulatory Commission recently threatened to order generators to refund a portion of the contested charges, $134.8 million, mostly covering state purchases in January and February.
Tom Williams, a spokesman for Duke Energy Corp, a North Carolina-based firm that operates four California power plants, said the company is spending $1.6 billion to upgrade and expand those facilities in an attempt to ease the energy crunch.
State seizures would discourage investment and hurt the industry, Williams said.
“The governor has said that two things need to happen: The state needs more supply and lower prices,” he said. “Seizing power plants would do nothing to help those two objectives.”
Any attempt to take Duke‘s property through eminent domain would spark a lawsuit, Williams said. “We would fight it vigorously, I can assure you, to ensure we got fair market value.”