Power: Essential Steps
Insiders liken the state’s electric power crisis to “The Perfect Storm,” the yarn about a rare convergence of weather forces into a system of unimaginable fury. It’s a good analogy. Soaring demand for power coincided with California’s sweeping deregulation of the electric power industry. As need has steadily outstripped supply, utilities and consumers have been hit with shortages and staggering price increases.
Weather systems tend to dissipate quickly, but the electric storm may last for months or even a year before there is real relief. Still, there are urgent steps that can be taken now to ease the crisis, which threatens the economic health of California:
* The Federal Energy Regulatory Commission must cap wholesale power prices charged by private power generators throughout the West. The commission rejected this proposal last week, expressing faith in the market. But the market is not working. California leaders and the Clinton administration should keep pressuring the federal agency to act.
* The state Public Utilities Commission, with the support of Gov. Gray Davis, should allow and encourage the state’s two largest utilities, Southern California Edison and Pacific Gas & Electric, to sign long-term contracts for power at reasonable rates. Presently, the utilities must pay exorbitant prices on the spot market.
* State and federal agencies must aggressively investigate power generators to see whether they are manipulating supply to reap excessive profits. Investigators also need to probe the escalating costs of natural gas, a major element in the higher cost of electricity.
* Consumers and utilities need to engage in a wide-ranging new conservation program to cut demand. This starts with efforts to get consumers to turn off computers when they aren’t being used and waiting until 7 p.m. to turn on Christmas lights. Utilities and the state should consider strong monetary incentives for homeowners to install efficient heating and air conditioning and to buy the most efficient electrical appliances. A program of sizable rebates on low-flush toilets succeeded in conserving water for the Los Angeles Department of Water and Power.
* The state, led by Gov. Davis, needs to acknowledge and describe the severity of the crisis to the public and discuss what needs to be done. Davis should begin with a statewide broadcast, a sort of fireside chat.
One bright spot for California is Los Angeles, where the municipally owned DWP opted not to join the deregulated market. The city retained its own plants and generates enough power to serve its customers and sell excess to strapped utilities. Citing this, some argue that the state should go into the power business itself to help break the shocking grip of the independent power companies. That might not be practical, but in times like this it’s an idea that should be considered.
It’s unfortunate that one likely short-term solution is for the Public Utilities Commission to grant the state’s biggest private utilities a rate increase. Some increase may eventually be justified to avoid enforced rationing of electric power. But, politically, a hike would understandably be greeted by a skeptical public as just another bailout only a few years after Californians were assured that deregulation would cut homeowners’ power bills. The rates charged by both Southern California Edison and Pacific Gas & Electric have been frozen since the new rules went into effect in 1998.
The utilities say they are plunging millions of dollars deeper in debt every day, paying private operators exorbitant prices for power and then supplying it to consumers at a loss. Independent power companies halted sales to the utilities last week because they were afraid they would not be paid, but U.S. Energy Secretary Bill Richardson intervened, forcing sales to continue under an emergency action, which he renewed Wednesday for one week. Richardson’s action, which requires some out-of-state suppliers to sell to California, is causing ever-louder grumbling from neighboring states.
Utility officials say that at the least they need a signal from the PUC that they will be able to recover some of their escalating debt over time through higher rates. Such assurance would enable them to borrow more money to pay for power during the coming weeks. The public too should demand some assurance. Before approving a rate increase, the PUC should examine utility records vigorously to determine whether threats of impending insolvency are valid.
