State Gives Aid Against Soaring Electricity Bills

On an afternoon when last-minute electricity purchases from the Pacific Northwest were necessary to rescue California from blackouts, state authorities voted Tuesday to lower the price it will pay for such buys.

And power officials braced for even shorter electricity supplies, warning that electricity reserves in California are so low that the state risks blackouts again today.

In a testy meeting marked by accusations of profiteering on the part of power sellers and poor planning on the part of utilities, the board that oversees the state’s electricity grid decided to give some relief to the 1.2 million customers of San Diego Gas & Electric.

They are the first utility consumers in the state’s deregulated industry to face soaring summer electricity costs with no price protection from the state. San Diego homeowners’ electricity bills have doubled, to an average of $105.10, in the past few months.

The lower price takes effect Monday.

The California Independent System Operator, or Cal-ISO, the Folsom-based nonprofit entity that makes sure there is enough electricity to serve the needs of about 75% of the state, narrowly avoided declaring a serious, “Stage 3” power emergency Tuesday, which would have meant ordering the state’s big investor-owned utilities to institute rolling blackouts across their vast territories. The grid operator’s power reserves fell below 3% Tuesday.

But Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric were ordered to cut power to hundreds of businesses and thousands of commercial and residential users of air-conditioner--customers who have agreed to have their power interrupted as many as 25 times a year in exchange for lower electricity rates.

“I don’t think we’ve ever gotten this low on [electricity] reserves in my experience,” said Ron Nunnally, director of federal regulation and contracts at Southern California Edison.

Southern Californians apparently got the message.

At the Valley Generating Station in Sun Valley, where temperatures hovered near 100, all 38 workers were making sure the plant’s units were working at capacity.

“Entire countries can live with this energy,” said Nazih S. Batarseh of the Los Angeles Department of Water and Power. “This is just one of four plants in the city.”

At the Anaheim Hotel and Towers, lights and air conditioners in empty guest rooms were turned off. In Cheesecake Factory restaurants, managers adhered to a memo sent Tuesday by e-mail, asking them to conserve energy by dimming lights in dining rooms. Even many storage rooms and walk-in refrigerators were kept dark.

“We are making sure that lights and switches that don’t need to be on are turned off,” said Howard Gordon, a senior vice president at the restaurant chain in Los Angeles.

About 1,000 Orange County government employees were sent home at 12:30 p.m. Tuesday after being notified that power to buildings in the Civic Center would be turned off. It was the third brownout this summer for county buildings; in 1995, the Board of Supervisors agreed to voluntary outages in exchange for lower electricity payments.

Officials at SDG&E; reported no outages Tuesday as a result of the statewide power squeeze. But they said they are prepared to shut off power in some neighborhoods, should the shortage worsen.

The Tuesday vote marked the third time this summer that the Cal-ISO has weighed the price cut option. Twice before, it narrowly refused to lower the cap from $500 to $250 per megawatt hour. In each case the board debated for hours, hearing consumer advocates and politicians plead for relief while energy producers and sellers asserted that state meddling would drive away the power plant builders California desperately needs.

California’s thriving, computer-based economy runs on energy consumption that outstrips what experts predicted even a few years ago. That has made the state’s four-year journey into deregulation especially troubling lately.

Energy prices naturally rise in the summer, when air conditioners can account for a third of the electricity consumed on a hot day. But the state has not added a major new power plant in a decade, in part because of uncertainty over deregulation. And other sprawling Western cities are sucking up the surplus power generation that California once tapped on the interstate grid.

The result is soaring prices for wholesale electricity. Customers of Pacific Gas & Electric and Southern California Edison are sheltered until at least March 2002 by a price freeze that lawmakers included in the 1996 deregulation law. But SDG&E; unlocked its rates ahead of schedule by paying down its debt on uncompetitive investments, such as a nuclear power plant.

SDG&E; officials argued Tuesday that, had the Cal-ISO imposed a $250-per-megawatt-hour price cap in June and July, consumers would have been spared an estimated $80 million in charges. A megawatt hour is enough electricity to supply 1,000 homes for an hour.

Consumer advocates maintain that California’s fledgling market is dysfunctional and still in need of some regulation. For example, they say, homeowners have no simple way of knowing when the wholesale price of electricity spikes so they can respond by shutting off clothes dryers or turning off air conditioning.

Severin Borenstein, director of the UC Energy Institute in Berkeley, agreed that California’s market is not yet truly competitive. Given the state’s tight supplies, a power producer with only 5% of the market can prove pivotal and demand high prices, he said.

Cal-ISO board member Mike Florio, representing the San Francisco-based consumer group known as The Utility Reform Network, said he suspects that energy producers are withholding supplies to ratchet up the price for hot afternoons when the Cal-ISO will need to buy electricity.

Others accused the state’s three big investor-owned utilities--SDG&E; in particular--of not doing enough to sign contracts to buy electricity months in advance so they could get a guaranteed price.

“I don’t think we should throw out the whole California market just because of a mistake SDG&E; made,” said Carolyn Kehrein, who represents commercial customers on the Cal-ISO board. She voted against lowering the price cap.

SDG&E; spokesman Doug Kline said the utility’s ability to sign contracts to buy electricity is limited by the state Public Utilities Commission. In any case, he said, SDG&E; fared as well as or better than PG&E; and Southern California Edison in what it paid for wholesale electricity this summer, based on a review of information posted on the other utilities’ Web sites.

At $250 per megawatt hour, power companies will still earn well above their production costs, which reach at most $100 per megawatt hour, said Borenstein.

But that may not be enough profit to induce companies to make major new investments in California, he said.

“That was the balancing the ISO had to do,” he said. “There’s been increasing political pressure to [lower the price cap] over time. But every time the administrators of the market step in and make new rules, they also create more uncertainty in the market by showing that they’re willing to change the rules mid-course.”

Under the 1996 deregulation law that created the Cal-ISO as a neutral traffic cop for the state’s high-voltage lines, the grid operators would not get involved in setting prices for electricity. The Cal-ISO is supposed to buy electricity only when demand threatens to outstrip supply, usually on extremely hot days.

But for many reasons, the Cal-ISO has found itself scrambling to buy electricity. On Tuesday, for example, of the roughly 43,000 megawatts needed to keep the lights on, 9,500 were purchased by the Cal-ISO, mostly from the Pacific Northwest. Hundreds of businesses voluntarily shut down to shed demand equal to 1,800 megawatts.

About 80% of the electricity consumed in California is typically bought and sold in the not-for-profit, Pasadena-based Power Exchange, which in effect has no price caps. But Borenstein said the price of electricity in the Power Exchange is inevitably influenced by what the Cal-ISO will pay.

On Tuesday, with demand soaring, not every utility fretted. Some profited.

Customers of the Los Angeles Department of Water and Power were urged to voluntarily conserve power, but the utility has more power than it needs. In fact, the DWP, which is not part of the Cal-ISO grid, sold 1,000 megawatts to that system and obtained an additional 200 megawatts from the Pacific Northwest, moved it along DWP transmission lines into California and sold it to the state, said S. David Freeman, DWP general manager.

“The reason there was no Stage 3 is because of the good old DWP,” he said. “We sort of saved the day for them” and made more than $1 million on the sale, which will be used to pay down the utility’s debt.

If a Stage 3 were declared, the Cal-ISO would then tell Southern California Edison and other utilities how many megawatts of power each utility would need to dump off the grid. The outages would be widely dispersed about Edison territory and would last about an hour for each group of customers.

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Vogel reported from Sacramento, Rivera Brooks from Los Angeles. Times staff writers Edgar Sandoval, Jean Pasco and Daryl Strickland contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Power Plays

The California Independent System Operator, which runs the electricity grid for about 75% of the state’s power users, has established a three-step system for dealing with power shortfalls. Here is how the system works:

STAGE 1

Conservation. Cal-ISO declares a Stage 1 power emergency when electricity operating reserves fall below 7%. The state’s big investor-owned utilities--Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric--are asked to urge businesses and consumers to conserve power by doing such things as turning off unneeded lights, machinery and appliances, setting thermostats at 78 degrees or higher and closing drapes.

STAGE 2

Voluntary power cuts. Cal-ISO declares a Stage 2 power emergency when electricity reserves fall below 5%. Cal-ISO orders utilities to cut power to residential air-conditioner customers and businesses that have agreed to voluntary power interruptions in exchange for discount rates.

STAGE 3

Rolling blackouts. Cal-ISO declares a Stage 3 power emergency when electricity reserves fall below 1.5%. Cal-ISO orders utilities to immediately reduce power, and rotating power outages become likely. Only essential power users--hospitals without backup generators and police and fire stations, for example--are exempted from the deliberate blackouts, which will be scattered across the utilities’ territories.

Power Prices Up

The wholesale price of electricity has soared in recent months for reasons that include rising demand, hot weather and the 1996 law that opened California’s electricity industry to competition. Here are average prices for electricity traded in the California Power Exchange, where about 80% of the states electricity is bought and sold.

June ‘99: $0.0235

June ‘00: $0.1202

Source: Western Power Trading Forum

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Power Prices Up

The wholesale price of electricity has soared in recent months for reasons that include rising demand, hot weather and the 1996 law that opened Californias electricity industry to competition. Here are average prices for electricity traded in the California Power Exchange, where about 80% of the states electricity is bought and sold.

*

Cents per kilowatt hour

June ‘99: $0.0235

June ‘00: $0.1202

*

Source: Western Power Trading Forum