Legislature OKs crisis power bill

Sacramento Bee

Rolling blackouts swept through Northern and Central California for a second straight day Thursday, as the state Legislature approved an emergency spending bill aimed at keeping the lights on – at least for a while.

Fearful of bringing down the state’s electric grid, power managers shut down electricity in the morning for an estimated 800,000 homes and businesses from Bakersfield to the Oregon border.

More than 60,000 customers in greater Sacramento lost power, while traffic lights went out, computer screens went blank and retail businesses were forced to close.

Power managers expect an improved outlook today, but say more blackouts are possible with any glitch in expected supplies.

By a 34-2 vote, the Senate approved a stopgap measure that appropriates $400 million for the Department of Water Resources to buy power until Feb. 1. That is the date by which policy-makers hope to have a long-term power-buying plan in place. The Assembly later approved the measure 70-0. The measure was sent to Gov. Gray Davis, who is expected to sign it this morning.

Key lawmakers acknowledged the bill does not guarantee the state will be repaid in full for its power purchases. “We will see the same undercollection here as the one that (has almost) bankrupted the utilities,” said Assemblyman Roderick Wright, D-Los Angeles.

But legislative leaders said the bill, which draws money from the state’s emergency reserve fund, was the best they could do.

“It is not the best solution to our problems, but it is the only solution to our short-term problem,” said Senate Democratic leader John Burton.

As was the case the day before, a train wreck of circumstances led to the unprecedented blackouts. With skies dry and water reservoirs low, the north state could only crank up half the hydroelectricity it normally does this time of year, said officials with the Independent System Operator, which manages the state’s power grid. Cold weather has kept demand high in the Pacific Northwest, sucking up energy that would normally be exported to California.

“Throughout the western United States, there’s not a lot of power out there that’s excess,” said spokesman Steve Becker of Avista Energy, a wholesale generator in Spokane, Wash. “We just don’t have the power we can ship down to you folks.”

In addition, a bottleneck of transmission lines near Los Banos has prevented power generated in Southern California from being shipped northward – especially in the morning, when utilities shut down their hydroelectric turbines to save water and power for the peak evening period.

All these problems were compounded by the reluctance of power generators in Canada and elsewhere to sell power to a state whose utilities can’t pay their debts. “We have a financial crisis as well as a power crisis,” said Kerran Fluckiger, chief operating officer of the California ISO. “One exacerbates the other.”

The second day of rotating blackouts hit the Sacramento area about 10 a.m., with 43,000 customers affected in Elverta, North Highlands and Fair Oaks.

An hour later, the blackouts shifted to 20,000 customers in Citrus Heights and Antelope. The Sacramento Municipal Utility District said the blackouts are generally moving clockwise, starting Wednesday in Natomas.

No injuries or fatalities were attributed to Thursday’s rolling outages across Northern California, but they produced some scary moments as grocery stores went dark, windowless offices went black and traffic lights went out.

In Silicon Valley, the blackouts again hit some of the pillars of California’s high-tech economy. Many companies ran generators – belching diesel smoke – to avoid multimillion-dollar losses.

“There haven’t been any angry outbursts (from business owners), but that is coming,” said Steve Pedesco, president of the San Jose Silicon Valley Chamber of Commerce. “We have to get more power. It’s just that simple.”

Sen. Dianne Feinstein, D-Calif., said California’s electricity crisis could ripple through the entire global economy. “It is that big,” she said. “Anybody who thinks this is just going to stay within California … is just dead wrong.”

However, President-elect Bush, in interviews Thursday with the Associated Press and several television networks, signaled that California is pretty much on its own in resolving the crisis. He dismissed the price caps sought by Davis as a way of fixing the problem, and instead proposed easing environmental rules that he said keep the state’s power plants from operating at full capacity.

“It’s their law,” Bush said, referring to the state’s 1996 deregulation legislation. “California is going to have to address and correct the law that has caused some of this to happen.”

Soon after noon, the ISO was able to end the blackouts earlier than expected, and call off earlier warnings of statewide blackouts after 5 p.m. The electric grid was helped by better-than-expected conservation measures and the sudden resumption of production by several broken-down power plants, ISO officials said.

Throughout Thursday, Davis and legislators worked to reach agreement on the emergency spending bill. Under the legislation, the state would buy power and re-sell it to the utility companies or to customers directly.

The governor acknowledged that his emergency powers allow him to buy power without legislative action. But he said power generators would continue to tack on a credit penalty to the state’s power purchases without a legislative appropriation.

“We’re being asked to keep the lights on,” Davis said before the Legislature acted. “We’ll put in all the necessary precautions to ensure that the state has recourse in case people for whom we put up the money don’t pay us back.”

Some legislators were far less confident. They say the state could be on the hook for hundreds of millions of dollars it may never see again. While GOP lawmakers said they resigned themselves to authorizing state funds to get out of the power crisis, they demanded a limit on the amount that could be spent and assurances that long-term strategies – such as relaxing environmental review to speed power plant siting – would be pursued.

“My concern is there’s a potential to rapidly deplete any surplus we might have had,” said Assemblyman Keith Richman, R-Sun Valley.

One consumer advocate said the bill smacked of a bailout of Southern California Edison and Pacific Gas and Electric Co.

“Just throwing a half-billion or a billion dollars of taxpayers’ money down the toilet is not the solution to this problem,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

To many, the day’s events illustrated how the state is at the mercy of wholesale power generators. The wholesalers are owed billions by the two utilities, the result of California’s failed experiment in deregulating the electricity market while prohibiting the utilities from raising charges to ratepayers.

Because they hold no collateral, the wholesalers would have an extremely tough time collecting from the utilities in a bankruptcy, said Los Angeles attorney Richard Levin, a veteran of utility bankruptcies.

Up until Thursday, the wholesalers said they were willing to keep selling to California – and hold off on any bankruptcy action – but only if lawmakers acted quickly. A bill bringing the water department squarely into the market was the only way to assure the wholesalers that eventually they’d get paid.

Davis also will have more control over a state board that regulates retail electric rates. On Thursday, he appointed Geoffrey Brown, a San Francisco public defender, to the Public Utilities Commission, creating a Davis-appointed majority on the board.

Grid officials said they hope to make it through today without any more rolling blackouts, partly because electricity demand usually drops on Fridays and the spending bill will help assure generators worried about the utilities’ solvency. They also predicted that supplies could improve next week when more ailing power plants are repaired.

Even so, the state is paying dearly for the supplies it is purchasing. Several sources said the state was spending as much as $800 per megawatt-hour, or about 14 times the price Davis believes Californians should be paying. ISO officials estimated that the agency was paying $10 million to $80 million daily for last-minute power supplies, and the state water department spent an additional $6 million each day on Wednesday and Thursday.

Those costs elicited little sympathy from one power industry official.

“That’s what happens when you try to buy fire insurance when your house is on fire,” said Gary Ackerman of the Western Power Trading Forum, an association of wholesale suppliers.

Ackerman and others said Davis’ pledge to have the water department buy power effectively calmed wholesalers that were considering cutting off sales or filing bankruptcy petitions against California’s distressed utilities, PG&E and Southern California Edison.

Still, the utilities’ financial crisis – which has already caused them to default on millions in debts and saddled them with junk bond status on Wall Street – took notable turns for the worse on two fronts Thursday.

Edison, given another two days’ grace to pay a $215 million debt to the California Power Exchange for wholesale electricity purchases, decided not to make the payment. That could scare off some out-of-state suppliers that might have been willing to sell to California, depriving the state of power that “could be the difference between the lights staying on and going off,” Ackerman said.

The Edison move also will prompt the Power Exchange to sell off future power supplies for which Edison had contracted at attractive prices. With Edison losing those vital sources of future power, the burden on the ISO and the water department to find power will increase, said Power Exchange spokeswoman Beth Pendexter.

Separately, PG&E said its inability to buy natural gas supplies has reached a “crisis level.” Gas companies representing more than 40 percent of PG&E‘s supply have threatened to cut off deliveries within days because PG&E has said it can’t pay cash up front.

U.S. Energy Secretary Bill Richardson, speaking in Santa Monica, said he will decide today whether to order the suppliers to keep the gas flowing to PG&E. Richardson also extended until Wednesday his order requiring power generators to sell available supplies to California – and threatened to punish violators.

Also on Thursday, Burton introduced a bill that would create a public power authority charged with selling revenue bonds to finance new power plants and offer low-interest loans to consumers and businesses for energy-efficient appliances.

The bill would require bond-financed generating plants to sell power to California at cost.