Bush extends for two weeks orders ensuring surplus power

The San Diego Union-Tribune

California’s attempt to beat down power prices through a huge Internet auction drew lots of cyber-lookers but no takers yesterday.

A spokesman for the state Department of Water Resources said the request for offers that was posted on the Web generated many hits but no bids as of late yesterday afternoon.

But no immediate response was expected, industry experts said.

In fact, with little more than a day to structure a deal for about one-fourth of California’s peak power supply, even serious players were expected to work late into the night to crunch numbers. The deadline to submit offers is noon today.

“Everything is going as expected,” said Gary Ackerman, executive director of the Western Power Trading Forum, an industry group that includes major suppliers of power. “The request for proposals was professionally done. It has some holes in it, but every (request) has some holes.”

Ackerman said he expected the state will get “dozens of responses.” But those will likely be above the state’s target price of $55 per megawatt, or 5.5 cents per kilowatt-hour, unless the contracts are for longer than five years, he said.

To be sure, the 5.5-cents-per-kilowatt-hour price is a far cry from the 28.5 cents that the state paid for power in December. Where the bids will fall was likely the subject of late-night debate among large teams assembled by major electricity suppliers last night.

“They are asking questions like: ‘Can we do this? Can we get gas (fuel for making electricity)? What if the price of gas goes upside down, and what if we want to (sell) this deal to someone else after three years?’ ” Ackerman said.

Gov. Gray Davis announced the Web-based bidding Monday night as a means of solving the long-running energy crisis that has driven the state’s two largest utilities near bankruptcy. Under deregulation, Pacific Gas & Electric Co. and Southern California Edison Co. have had to buy high-priced wholesale power, but have been unable to pass along the full cost to their customers.

San Diego Gas & Electric Co. has more of a guarantee that it will be able to recover its costs.

And as the state endured its eighth straight day in a Stage 3 emergency, the Bush administration took its first step in the power crisis by extending emergency orders requiring gas and electricity suppliers to sell to California.

In Sacramento, a spokesman for Davis said he expected the electricity bids to be starting points for bargaining.

“We expect them to be high,” said Steve Maviglio, the governor’s press secretary. “We will attempt to negotiate with those people.”

Davis has retained Goldman Sachs, an investment banking firm, to assist the state in its negotiations.

Legislation that would allow the state to sign long-term contracts for electricity has not yet been sent to the governor. The response to the bid request yesterday is expected to help lawmakers prepare the final version of the bill.

Davis signed an emergency appropriation Friday that allows the state to spend up to $400 million to buy power. That money is being depleted at an average of about $40 million daily, according to the California Independent System Operator.

Lawmakers hope the money will last until long-term contracts can be arranged.

In a replay of the last week, meanwhile, the Independent System Operator said the state tiptoed at the edge of rolling blackouts again yesterday.

Kellan Fluckiger, chief operating officer of the ISO, said the state was spared potential blackouts by a shipment of power for a brief but critical period during the morning from the Northwest.

The state’s power demand also became less flexible yesterday when PG&E lost the ability to shut down some 500 megawatts of power consumption. The customers using that power were under an interruptible power supply contract, which provides cheaper power to customers in exchange for the right to suspend their service during critical periods.

But the Bay Area utility said it has exhausted the maximum number of interruptions allowed by the agreements.

Fluckiger said yesterday’s problems were not a result of supply shortages within the state but a result of transmission constraints that blocked the shipment of available power to regions where it was needed.

He expected the state to remain vulnerable to blackouts until more generation comes back online, either through repair of plants that are said to need maintenance or through rainfall replenishment of water reserves that provide hydropower.

The state also was assisted yesterday by the extension of key emergency orders from the Bush administration.

Despite its hands-off rhetoric in past days regarding the California power crisis, the new administration yesterday extended for two weeks a pair of emergency orders compelling the sale of electricity and gas to the state’s cash-strapped utilities.

But the new administration indicated this would be the last time. The ISO estimates the orders have brought up to 600 megawatts of electricity during key periods, which amounts to an often critical 2 percent of California’s overall power requirements.

Energy Secretary Spencer Abraham said he and Davis agreed that no more extensions would be necessary.

“Our action today is designed to give the governor, the California Legislature and other relevant parties the time to take necessary action,” Abraham said in a written statement.

The new energy secretary said the construction of more power plants, reform of the state market rules, a restoration of the financial health of California utilities and encouragement of greater conservation are the answers to the state’s crisis.

Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights said he remained leery of the state auction. He said Davis could improve the state’s negotiating position by threatening stronger action, including the takeover of power plants.

“I am very concerned we will get locked into contracts longer than necessary,” said Rosenfield, who is expected to lead a statewide initiative campaign next year to overturn deregulation.

Curtis Hebert, the new chairman of the Federal Energy Regulatory Commission and a supporter of deregulated markets, said yesterday that officials “have the ability to resolve (the crisis) and they are not following through with what we asked them to do.”

He was referring to a FERC order aimed at stabilizing the California situation by encouraging more long-term power contracting.

The FERC order was widely condemned by California officials, who had been urging the commission to impose caps on wholesale electricity prices. Hebert has been an outspoken foe of caps.

At a FERC conference yesterday on repairing the state market, price caps found an ally in the ISO itself, which often resisted the concept last year.

In a draft proposal to federal officials for fixing the California market, the ISO said efforts to loosen caps last month had failed and that suppliers could easily engage in “tacit collusion” to drive up prices. The ISO called for price caps in some cases, along with greater reliance on long-term contracts.

In San Diego County, the Board of Supervisors proceeded with its vision of how to fix the mess yesterday. Supervisors voted unanimously to seek state legislation for the creation of a countywide municipal utility district.

“This is not a short-term fix,” Supervisor Bill Horn said. “This is a long-term fix.”

Details were sketchy, but Horn and Supervisor Dianne Jacob said the legislation could be introduced in about a month. It would allow the county to join with other cities and government agencies to form a district that could buy, sell and generate power.

STAGE 3

The California Independent System Operator, manager of the state’s power grid, declared a Stage 3 alert yesterday after reserves dropped to less than 1.5 percent of available energy.