Problem Has Many Answers, None Easy

If there were a free lunch, if money grew on trees, if you could get something for nothing, California would have no trouble solving its energy crisis.

Since that is not the case, there is nearly universal agreement that sacrifices will be needed before the state can fix its electricity problem, before people can stop worrying about rolling blackouts powering down computers, switching off lights and darkening TV sets.

The solutions offered by political leaders, energy executives, academics and consumer advocates lie in the state becoming an energy supplier, or in consumers using less electricity, or in clean air standards being suspended, or in electricity rates being raised. The answer may even lie in bankruptcy court.

The question is: Who will pay? Will it be consumers, utility companies, taxpayers, the federal government, electricity producers, the environment, or some combination?

The consensus answer is somewhat heartening, if evasive: Beyond the immediate crisis, which is perilous and troubling, there is almost certainly a solution.

“I do think that in two years, people are going to look back and say, ‘Wasn’t that an interesting time?’ ” said Kit Konolige, an energy industry analyst with Morgan Stanley Dean Witter in New York.

But every potential solution being offered so far has its pluses and minuses. No one solution is likely to be enough. Some are more politically acceptable than others. Already, for instance, President-elect George W. Bush has signaled that the federal government will play only a small role, other than drafting a new national energy policy.

So one potential solution--federal caps on wholesale electricity prices--can be scratched off the list right away.

Chances are, the solution will eventually involve some combination of proposals, none of which by itself will remake California’s energy landscape.

The strategies for easing the energy crisis are colored by political philosophies.

Republicans largely believe the long-term solution lies in the private sector. If California relaxed environmental regulations or provided incentives to speed construction of power plants, supply would increase and market forces would reduce the price of electricity for the state, they say.

“The long-term plan has to include incentives to power plant construction,” said Assemblyman Keith Richman (R-Northridge). “If we don’t do that, we don’t get too far away from this problem.”

Democrats increasingly see the state as having the responsibility to regain control of its energy market.

Here are some of the ideas being discussed:

Power Authority

One of the strongest ideas taking hold--and, in the short term, being carried out--is to have the state government take over some portion of the electricity industry in California and, in effect, become a super utility.

This could take various forms. What the state has done already is to appropriate money and authorize the Department of Water Resources to buy power on the wholesale market and provide it to utilities.

Beyond that, the possibilities range widely. The state could continue to use its good credit rating to purchase power for private utilities, striking relatively cheap, long-term deals. Or, in the other extreme, it could use its power of eminent domain to take over power plants or entire utility companies to force its way into the energy business.

Somewhere in between is a plan drafted by S. David Freeman, the general manager of Los Angeles Department of Water and Power, and introduced as legislation this week. It would create an authority that would build power plants and spruce up aging ones, improve power transmission lines and take over existing plants through eminent domain.

“The new president told us in plain English to take a flying leap at a rolling doughnut,” he said Friday. “The idea is that the state, instead of just buying at high prices, would be building plants and funding conservation programs to get us from shortage to surplus.”

That plan has its fans.

“There’s some things in life, like water, like electricity, that are commodities, that people need to live,” said state Treasurer Phil Angelides, adding that in Sacramento, Los Angeles and other parts of the state, public power agencies have proved reliable.

Another idea, broached by Michael Shames of the Utility Consumers Action Network in San Diego, would be for the state to act as a power authority to buy electricity for small customers, leaving large industrial users to bid for power on the open market.

Not surprisingly, establishment of a state power authority is anathema to the financial community and the big private generators of electricity, who say the state hasn’t distinguished itself as a reliable manager of businesses in the past.

“If the ratepayers think they’ve got it bad now, wait until the state starts running a power agency,” said Donato Eassey, an energy analyst with Merrill Lynch. “If they run out of money, they’re either going to raise taxes or sell bonds that the taxpayers are going to pay.”

Bankruptcy

Strange as it may sound, some believe the answer to the state’s problems lies in bankruptcy court, where the state’s two largest utilities--Pacific Gas & Electric and Southern California Edison--may wind up if nothing is done. The utilities have spent $12 billion more on electricity over the past eight months than they have received in customer payments.

Bankruptcy provides “a neutral forum and political cover for people to make the hard decisions that have to be made,” said Daniel Bussel, a bankruptcy specialist at UCLA Law School. For example, he said, a bankruptcy judge could impose rate increases that would be politically difficult.

“That provides a legal buffer to political actors,” said Jay Westbrook, a law professor at the University of Texas.

There are downsides, Westbrook said. For instance, bankruptcy is such a loaded term that markets will react negatively, making credit more difficult.

Critics say bankruptcy will only mire the state in a protracted and expensive mess and put money into lawyers’ pockets.

Freeman said bankruptcy is not a reasonable option because the utilities might be forced to sell their few remaining power plants. Under California’s electricity deregulation law, they were forced to sell their gas-powered plants but could keep nuclear, hydroelectric and renewable-energy plants. Freeman said he wouldn’t want to see out-of-state suppliers allowed to “own the rest of the power.”

Easing Regulations

Bush suggested Thursday that California ease its air quality regulations to allow gas-fired power plants to produce more electricity, unburdened by the responsibility to limit their noxious emissions.

Some energy industry officials say this is common sense. Eventually, they say, California will have new, cleaner power plants built. In the meantime, the state should take a deep breath, crank up its old, dirty-burning plants and sacrifice some of the gains that have been made in the battle against air pollution.

“You’ve got to have a little sacrifice, including the air quality issues,” said Eassey, the Merrill Lynch analyst.

Environmentalists, of course, are horrified at the idea, and say the state can find other, more environmentally friendly ways to increase supply. Even Konolige, who opposes many state restrictions, said it’s ultimately a trade-off that Californians need to decide.

“It’s not up to Bush whether you should or shouldn’t relax pollution standards, it’s up to the people of California,” Konolige said.

Conservation

Although few believe conservation alone can solve the state’s woes, many people across the energy spectrum agree it could play a significant role.

“The nearest-point thing to do is to conserve, big time,” said Tom Williams, a spokesman for Duke Energy, which bought several California power plants as a result of deregulation.

The Center for Energy Efficiency and Renewable Technologies, a Sacramento-based coalition of environmental groups, estimates that the state could shave as much as 4,600 megawatts off its peak electricity consumption--about enough to eliminate the shortages predicted for the hottest days this summer--if it adopts a proposed energy saving program.

The plan would subsidize the replacement of old, electricity-guzzling appliances and install computer software to limit businesses’ electricity usage--raising thermostats in summer when the state’s grid begins to get overloaded.

Sheryl Carter, an analyst with the Natural Resources Defense Council in San Francisco, said energy efficiency and renewable energy “represent the fastest, cheapest, cleanest way of lifting the load on California’s energy system.”

In recent years, she said, the state has taken conservation steps that have saved as much power as 11 power plants would produce. She said continuing to replace old refrigerators or switching to compact fluorescent lightbulbs could eliminate the need for 11 more.

No one disagrees that conservation is a good idea. But some argue that the best conservation measure is a price increase, said Robert Michaels, a Cal State Fullerton economist. “No economy has run for a long period of time on voluntary conservation when power is available at reasonable prices,” he said.

Price Increases

There’s one simple solution to California’s power shortage. If the state allowed the utilities to raise rates by another 20% or so, plenty of power would immediately begin to flow into the grid. The problem is that nobody wants to pay more.

Michaels said the obvious solution is to build more plants and, in the meantime, let the natural forces of supply and demand work.

Consumer advocates and their allies strongly disagree, and have been arguing for weeks that the utilities, having gambled with deregulation and lost, should have to foot the bill. “You live by the market, you die by the market--you live by deregulation, you die by deregulation, too,” said Jonathan Zosloff, a law professor at UCLA who specializes in public policy.

Freeman, the DWP chief, argued that rate hikes will be necessary, but should be balanced so that residential consumers pay less than large businesses. “There’s going to be some hardships on the larger customers,” he said. “It would be obscene to require people who earn $20,000 and $25,000 to double their electric bills,” Freeman said. “This is not orange juice. We’re talking about the oxygen of life.”

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Times staff writer Miguel Bustillo contributed to this story.