Spiraling prices roil utility market as supplies remain pinched

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The Associated Press

With wholesale electricity prices roaring upward, Wall Street is worried about utilities’ economic health and a consumer group has urged the state immediately to seize and run the strapped $20 billion electricity system.

And stress remained on the state’s power system. Authorities called a Stage One alert Wednesday morning, eight hours after lifting a Stage Two alert that was prompted by a failed Northwest power plant.

“Everybody scrambled. Everyone got hurt at once. That’s how fragile this system is,” said Patrick Dorinson, spokesman for the Independent System Operator, which manages the state power grid.

A Stage Two power emergency occurs when demand from homes and businesses takes all but 5 percent of state power reserves. Stage Two emergencies have become a daily routine as the state’s power system labors to meet demand.

Dorinson said a Stage Two alert was likely Wednesday night because of problems importing power from the Northwest.

In Washington, the Federal Energy Regulatory Commission said it would announce a long-awaited fix-it order for California’s deregulated electricity market on Friday. The market has been roiled for months by tight supplies and unrelenting price spikes.

In the past five days, wholesale power prices climbed five-fold – from $250 per megawatt hour on Friday to $1,182 by mid-day Tuesday at the California Power Exchange, which coordinates the advance buying and selling of wholesale electricity.

Last year at this time, prices ranged from $22 to $45 per megawatt hour.

At the offices of the state’s power grid, where emergency power is bought and sold – sometimes mere minutes before being used – the price climbed to about $1,400 per megawatt hour, said Greg Pruett, a spokesman for Pacific Gas and Electric Corp.

Meanwhile, the Santa Monica-based Foundation for Taxpayer and Consumer Rights urged Gov. Gray Davis to seize of the state’s electricity system and force idled plants to boost supplies.

Boosting the political heat on the governor to resolve the months-long electricity crisis, Foundation President Harvey Rosenfield said Davis has the authority to take over the power plants.

“Some of these power plants are sending power out of the state and it’s got to be stopped,” Rosenfield said. “He (Davis) has the authority under the state’s health and safety laws to seize them. That’s what eminent domain is all about.”

“There are two power crises in California today – the first is the electricity crisis and the second is the political crisis,” Rosenfield added. “The economy could collapse if the government does not take action.”

Davis spokeswoman Hilary McLean said she was unaware of Rosenfield’s proposal. She said his “focus on the utility crisis is continuing.”

McLean added that Davis went to Washington, D.C. to attend a national meeting of Democratic governors.

“He is aware of FERC’s impending decision, and he is doing what he can to make sure they do the right thing,” McLean said.

Tom Williams, a spokesman for power producing Duke Energy, said most of the energy shipped out of state was covered by contracts signed at least a year ago. He dismissed Rosenfield’s proposal, which was expected to be detailed Wednesday.

“We don’t like having our property seized. We have four power plants and they generate 3,150 megawatts, and our shareholders invested $611 million in them,” Williams said.

Pacific Gas and Electric Co. and Southern California Edison, both operating under a rate freeze, say they have paid $6 billion more for wholesale electricity than they have been able to pass onto customers.

Wall Street’s credit-rating analysts have been concerned at the utilities’ cash crunch. On Monday, the credit rating firm Fitch lowered the short- and long-term ratings of PG&E and SoCal Edison.

On Tuesday, PG&E spokesman Greg Pruett said Standard and Poor’s and Moody’s both told the company they were reviewing the utility’s credit rating.

“The Street is reaching the conclusion that this is a market out of control,” Pruett said. “This problem is so big and has such a real and serious potential to ruin our state’s economy.”

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