U.S. Threat to Out-of-State Power Firms Averts Blackouts

Power producers throughout the West refused Wednesday to ship electricity to California, prompting U.S. Energy Secretary Bill Richardson to threaten them with federal intervention to avoid rolling blackouts across the state.

Shortly after Richardson’s rare move, electricity began flowing into California from producers in the Northwest and elsewhere--avoiding power shutdowns in a week of close calls.

The producers, who have gained extraordinary leverage since deregulation took effect in 1998, had said they were afraid of not being paid by the state’s biggest buyers of electricity--Southern California Edison and Pacific Gas & Electric Co. Since June, those utilities have paid $7 billion more for electricity than they can legally pass on to consumers.

Before deregulation, the utilities produced and delivered electricity. Under the current setup, utility executives have begun to warn that their companies are nearing bankruptcy.

The financial burdens have become so heavy that Southern California Edison, which serves 11 million customers, called for an end to deregulation.

John Bryson, chief executive of Edison International, said the company’s Rosemead-based utility is having trouble raising $1 billion in bank loans to finance its increasing debt.

“Our credit position has deteriorated,” he said. “We are caught in a vise.”

Bryson said his perception of Edison’s problems has darkened considerably over the past two weeks as the price of wholesale energy has doubled at a time when he thought some relief was forthcoming.

Energy Secretary Richardson learned of the producers’ refusal to sell during a meeting with Gov. Gray Davis and U.S. Sen. Dianne Feinstein (D-Calif.). The three were discussing the prospects of the Federal Energy Regulatory Commission capping electricity prices across the West. The commission is expected to issue an order Friday, but its contents remain unknown.

Word of the refusal changed the thrust of the meeting from long-range solutions to the crisis of the moment.

“I will not allow [power sellers] to unjustly profit,” Richardson said at a news conferences. “I will demand a fair price.”

Richardson threatened to invoke his rarely used power to force the producers to sell electricity to California and warned that the rates would be set by his department, not by the current market, which has seen prices escalate from $30 a megawatt-hour in December 1999 to more than $1,500 for the same quantity of electricity this week.

He also directed federal hydroelectric networks outside California to boost power generation.

Energy industry experts said Wednesday that it is unclear whether Richardson has the authority to set rates for wholesale electricity. Rates typically are the realm of the Federal Energy Regulatory Commission, a body of five presidential appointees.

But that issue became moot--at least for the moment--when the power producers apparently blinked, heading off a series of one-hour blackouts anticipated to begin about 1 p.m. Such rotating outages have never been triggered statewide, although more than 30 warnings of low electricity reserves have been issued this year.

Among the companies that sent electricity through the power grid to California on Wednesday was Bonneville Power Administration in the Pacific Northwest. But officials said that in these uncharted waters, even such a helpful action could set the stage for power shortages next year if rain does not replenish reservoirs.

“This is a robbing Peter to pay Paul,” said Kellan Fluckiger, chief operating officer of the California Independent System Operator, which oversees the transmission grid serving 75% of California. “We’re literally accessing next year’s power to get by now.”

Excel Energy, the former Public Service Co. of Colorado, was one of the 12 companies that halted sales Wednesday and then renewed them after “learning of the emergency situation,” said spokesman Mark Stutz.

“We weighed economic factors with social factors and those were the driving forces in resuming sales,” Stutz said.

According to a list released by Gov. Davis, Portland General Electric in Oregon had grave reservations about parting with its valuable commodity.

“We are extremely concerned about the credit situation in California and we have asked for assurances this week . . . that we will be paid,” said Portland General’s senior vice president, Walt Pollock. “Those assurances have not been forthcoming.”

Enron Corp. complained that the utility companies are not the only ones getting pinched. Senior Vice President Steve Kean said his firm is having a tougher time finding lenders to finance its power sales to the state’s Independent System Operator because of concerns over he system’s financial health.

Feinstein and Davis blamed some of California’s power shortages on producers that peddle electricity out of state for greater profits--a shift, they said, that could be corrected by a regional price cap.

Power generators with plants within the state must sell electricity if the agency overseeing the state’s electrical grid demands it. But out-of-state companies--on which the state depends for one-fourth of energy consumed--have the right not to sell power if they elect not to.

Feinstein and Davis pointed out that prices in California’s electricity market soared this week after federal regulatory commissioners late Friday, without public notice, eased a $250 per megawatt-hour price cap to help the operators overseeing the state’s grid to attract more electricity sellers and avoid blackouts. The move infuriated Davis, who was not consulted and has been urging federal regulators to impose a strict $100 per megawatt-hour price cap.

Whether the Federal Energy Regulatory Commission on Friday will do as Feinstein and Davis want and impose a price cap across the entire West is not clear.

But commission Chairman James Hoecker promised that “the commission will take strong action soon.”

“The [commission] will be part of the solution, not part of the problem,” he said at the news conference attended by Richardson, Davis and Feinstein.

Bryson also cited the latest signs from the California Public Utilities Commission that show a lack of receptivity to utilities’ pleas for repayment mechanisms.

Last Thursday, PUC President Loretta Lynch announced that she was suspending work on Edison’s application for a 9.9% consumer rate increase and then this week proposed a change in accounting systems that Bryson said “might never allow us to recover our costs,” Bryson said.