Energy Crisis August 2001

Energy Crisis 2002

On July 28, the Los Angeles Times published a scientific opinion poll of 1541 Californians with 83% saying they had paid close attention to thee energy crisis. Despite blackout and record increases in prices most are unconvinced that the State suffer from a true shortage of power. Instead 86% believe that power companies manipulated the energy market to boost profits. The energy producer deny this, however former employees of these companies have testified that power plants were shut down last winter without apparent reasons. The Utility Reform Network has accused the industry of "cooking the books".

The springboard for our problems was Assembly Bill 1890, the energy deregulation legislation, passed by the Legislature in 1996 and implemented beginning in 1998. The law resulted in the sale of generation facilities by the utilities and removed price controls on wholesale energy while temporarily maintaining the Public Utility Commission approved caps on consumer prices. In an effort t to foster competition the law prevented utilities from entering long term contracts with the generators. This created what many term as the "greed incentive". Former SMUD General Manager, now a senior energy advisor to the Governor, David Freeman has stated that a situation was created wherein a "blind pig could get rich".

The utilities and power generators blame the State for being too slow in approving new plants and the environmentalists for being obstructionists. However, during the period from 1994 to 1997 no applications for new power plants were submitted to the State Energy Commission by the generators due to the uncertainties caused by industry restructuring. It has been reported that the industry, while claiming financial hardship, has awarded substantial bonus to management staff. The parent company of PG&E, which has now declared Chapter 11 bankruptcy, used profits derived from sale of California plants and collection of "stranded costs" to purchase generators in the east and south. In addition, a recently published study by California Common Cause documents that the utilities and generation companies spent $13 million for lobbying and political contributions during the 1999- 2000 period when the deregulation was being implemented and the energy crisis developed.

There has been 200 fast track bills introduced during the Special Session of the Legislature called to address the energy crisis. There has been nearly 3000 energy bills introduced during the regular session. These have included the creation of a State Power Authority, funding for conservation measure and streamlining the power plant certification process. Other proposed legislation would provide incentive for alternative energy sources, help expedite the formation of public owned utilities, establish a windfall profits tax. on power generators, and authorize the purchase of the Southern California Edison power transmission lines.

The State has filed an unsuccessful claim through the Federal Energy
Regulatory Commission (FERC) of $9 billion for a rebate of overcharges by the generators, and further legal action is likely to follow. The State has been able to obtain long contracts that have helped stabilize costs at less than one half of those last winter. Following extensive political debate the State was also successful in convincing the FERC to establish a nominal cap on short term "spot" energy prices However these costs are still nearly triple pre-crisis values. Californians have responded by reducing their peak power use by 10 to 12% this summer.

The power industry, with the support of the Federal Administration, is urging relaxation of environmental standards and increased fast track approval of new power plants. Consumer and environmental groups are advocating the conversion to a public owned power system along with conservation and alternative sources such as solar and wind energy.

While the State problems are far from being solved Sacramento enjoys the benefits of service by SMUD which, being public owned, can enter long term contracts and avoid the volatile "spot" energy market. SMUD recently raised rates for the first time in ten years, however the rates remain significantly lower than those of the private utilities. They are also planning the construction of a major 900-megawatt natural gas fueled power plant at the Rancho Seco site. SMUD has also started the process to renew the operating licenses for their Upper American River Hydroelectric project.