PUC to Tackle Electricity Plan

Last summer, Californians broke a 5-year-old record for consuming electricity -- seven times.

Still, the lights continued to burn and the air conditioners hummed. The managers of the state’s power grid heaved sighs of relief.

“The facts are we got lucky,” said Joe Desmond, the top energy advisor to Gov. Arnold Schwarzenegger, “but we may not be so lucky next time.”

Looking to avoid a repeat of the soaring electric bills and rolling blackouts of 2000 and 2001, the governor wants to ensure that utilities will have more than enough power over the next few years to meet the demands of their customers, even on the hottest days.

Later this month, the California Public Utilities Commission is scheduled to consider a key element of Schwarzenegger’s energy plan: moving up the deadline for utilities to satisfy a state mandate that they have enough power available to meet peak demands and have at least 15% in reserve. The governor wants to move the target date to June 2006 from January 2008 -- which probably would require utilities to buy more power from independent generators.

“This will give us the assurance that we can and will meet the state’s growing energy need, both in the short and long term,” said PUC President Michael Peevey.

The vote will be the first test before the PUC of the governor’s evolving energy strategy. It’s already generating plenty of heat.Whether the five-member commission will give the governor what he wants is unclear. The panel tends to vote in blocs, with Commissioner Susan Kennedy supporting Peevey and Carl Wood backing Loretta Lynch, who regularly skirmishes with Peevey. Geoffrey Brown is the swing vote; last week he asked to postpone a scheduled vote on the governor’s proposal so he could have more time to study the two dozen briefs submitted by interested parties.

Consumer advocates accuse the Schwarzenegger administration of using scare tactics. They see the lack of blackouts this summer as proof that California has sufficient power at least for the next few years.

Beyond that, these critics contend, customers of electrical utilities could be forced to ante up billions of dollars to pay for unneeded generating capacity -- and as it is, they’re still paying off overpriced, long-term contracts signed by former Gov. Gray Davis during the height of the energy crisis.

“We’re larding costs on to the ratepayers,” Lynch said. The dispute over what is known as “resource adequacy” is a crucial opening battle in the larger struggle over how to restructure California’s electricity grid after the failed deregulation experiment of the 1990s.

Large businesses and the governor favor a free-market, partially deregulated approach that they contend would spur private investment, lower electricity prices and boost supplies. Ratepayer advocates and many top Democratic lawmakers are adamant about shoving the deregulation genie back in the lamp and returning to the days when most people bought electricity only from local power companies.

Neither side disputes that more power will be needed in the long run. Population growth alone will assure that. The debate is over how much will be needed and when -- and how much Californians should have to pay for it.

Utility customers shouldn’t be lulled by the fact that they made it through the summer without major power outages, said Mary Jo Thomas, operations engineer for the California Independent System Operator, which manages the grid that moves power around much of the state. (The Los Angeles Department of Water and Power and some other municipal utilities aren’t involved.)

When a heat wave hit California in early September, Thomas said, temperatures remained relatively cool in the desert Southwest and the Pacific Northwest, allowing the state to import large amounts of power from those regions. Oregon and Arizona may not be so cool next year or the year after, she warned.

What’s more, Thomas said, recent estimates by state agencies indicate growing potential shortages over the next few years if California and the region suffer extremely hot weather, which has a 1-in-10 chance of happening in any given year.

According to the California Energy Commission, by next August the state’s reserve power-generating capacity could fall well below levels considered safe. The commission forecasts that the cushion could continue shrinking until it disappears in 2010 -- dramatically increasing the likelihood of power disruptions.

That scenario could become bleaker -- with shortfalls in 2008 -- if generators retire aging power plants, removing as much as 9,000 megawatts of peak generating capacity from the grid. (One megawatt is roughly the amount of energy consumed each year by 700 homes.) Indeed, power plant construction has lagged since electricity prices crashed in the wake of the energy crisis.

The picture has improved recently. Ten plants with a combined 4,901 megawatts of capacity are under construction, and another nine plants with a potential 6,158 megawatts have been licensed but put on hold by their developers. Earlier this month, independent power producer AES Corp. of Arlington, Va., said it would install another 500 megawatts of new capacity if it can lock up electricity buyers.

Schwarzenegger wants to see those partially built plants completed and the ones on the drawing board become reality. For that to happen, the generating companies -- and their Wall Street investors -- are demanding the security of long-term contracts to sell electricity to utilities like Edison International’s Southern California Edison Co. and PG&E; Corp.’s Pacific Gas & Electric Co. Pushing up the deadline for utilities to meet the power reserves requirement should provide an important spur to negotiating those contracts, the governor hopes.

Skeptics agree that California needs a new energy policy that encourages investment in power plants. However, utilities should not be rushed into signing contracts for power deliveries that might not be needed right away, said John Fielder, a senior vice president at Edison in Rosemead.

A more-gradual deadline is less likely to create a “seller’s market” that would allow private generators to try to raise prices, resulting in higher rates for residential and commercial users, he said.

State officials dispute this view, arguing that forcing utilities to lock in future power deliveries now won’t be costly to customers.

In the meantime, Fielder predicted that absent a major system failure or extended stretch of 100-degree-plus weather, “we should be OK in 2006, 2007 and 2008.”

The Schwarzenegger administration’s push for a tighter deadline is more about creating “the appearance” that it is doing something, rather than crafting a coherent energy policy, said Bob Finkelstein, executive director of the Utility Reform Network, a San Francisco-based ratepayers advocacy group. “They think that “if a little bit of insurance is a good thing, then a lot of insurance must be a better thing.