State Power Rates High, Panel Told

Californians pay an extra $3 billion a year for electricity since a failed attempt at deregulation, with rates that are 52% to 70% higher than those in Arizona, and power supplies could run short again in 2007 and beyond, according to testimony Tuesday in a legislative hearing.

Two years after blackouts and outrageous prices threatened people’s safety and jobs, the customers of California’s private utilities pay some of the highest electricity rates in the nation, and there is no consensus among political leaders on whether private industry or government should be relied on to develop new power supplies.

“The energy policy California has right now is a little like the turtle on the fence post,” said Sen. Debra Bowen (D-Marina del Rey), chairwoman of the Senate Energy Utilities and Communications Committee. “We know it didn’t get there by itself, we’re not quite sure who put it there or why, and we know it can’t get down by itself.”

The implosion of the ambitious power market that California created in 1998 led state regulators to raise electricity rates twice in 2001, so that customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric pay $3 billion more a year than they did before the increases.

Those rates vary for residential, commercial and industrial customers, but are between 52% and 70% higher than the average electricity rate in Arizona, Bowen said.

Some power generators briefly earned huge profits during California’s power crisis, but the industry did not walk away unscathed. Many companies were targeted by government investigators for wrongful manipulation of natural gas and electricity markets, making banks wary of lending them money to build more power plants.

According to the California Energy Commission, more than 40% of the about 9,400 megawatts of power-plant capacity that was scheduled to be built in the state as of March 2001 has since been put on hold by private companies for assorted reasons, including lack of financing. The delayed plants could together generate enough electricity to supply 2.7 million homes.

The canceled construction could lead to tight power supplies after 2006, said energy commission Executive Director Steve Larson.

“We need to be making decisions soon if we’re going to fully prepare for 2006 and beyond,” Larson said.

S. David Freeman, chairman of the state public power authority, said he is not so confident about California’s ability to get through even next summer without power shortages or price spikes. He warned that nearly half of the state’s power plants are 30 years old or more and prone to breakdown.

What’s more, about 15% of the state’s capacity to generate electricity is owned by private companies that have no contractual obligation to sell the output within the state.

“You have to run scared when plants are old and can be shut down for economic reasons and the new ones can make contracts to sell out of state and we don’t even know about it,” Freeman said. “I don’t think we have reserve numbers that you can just gladly say we’re OK.”

He urged the Public Utilities Commission to order Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric to aggressively sign long-term contracts for power so they are not caught short, especially on hot summer days when air conditioning drives up consumption.

Those utilities returned to the business of buying power for their customers this month, resuming a job that the state Department of Water Resources assumed in January 2001 after the utilities took on so much debt that power generators refused to sell to them.

The utilities are obligated to give the PUC long-term plans for buying electricity by April 1. Supplies appear abundant for 2003, said Barbara Hale, director of strategic planning for the PUC. Either through contracts or their own power plants, the utilities have 3% to 12% more electricity than their customers probably will need in all but one month of 2003, she said. The largest share of that power comes through contracts that were signed by the Department of Water Resources, many of them negotiated by Freeman when he worked as an advisor to Gov. Gray Davis in 2001.

In the two-hour hearing, the first on California’s energy policy since the state’s budget shortfall overwhelmed lawmakers late last year, Bowen questioned whether the state’s investment in energy efficiency is adequate. She also asked experts whether they had calculated what could happen to power reliability in California should PG&E;, now in bankruptcy, succeed in selling its 4,000-megawatt hydroelectric system to an unregulated company.

Freeman called such a possibility “just horrendous,” given the crucial role PG&E;’s powerhouses on the Sierra Nevada’s rivers play in meeting the state’s peak demand. He said the California Consumer Power and Conservation Financing Authority that he leads, which was created by the Legislature in 2001 to guarantee adequate electricity supplies, holds the authority to seize PG&E;’s power plants by eminent domain if necessary.