A shroud of desperation enveloped California officials Monday, stretching from the state Capitol in Sacramento, west to San Francisco, and south to Los Angeles as regulators and a federal bankruptcy judge wrestled with the state’s electricity crisis, but with no indication of when and how the battle will end.

A spot market record price of $2,000/MW during one of last week’s Stage Three alerts and rolling blackouts have heightened the animosity between political and consumer leaders, and some state officials are raising the possibility of Gov. Gray Davis seizing private sector power plants under emergency powers he possesses. A recent report by the state energy commission questioning some power plant shutdowns in April also tossed more fuel on the political fires.

With the ink barely dry on a $13.4 billion state bond measure (SB 31X) to begin digging both the state and private sector utilities out from under mounting debt, indications from various stakeholders are: (a) the money is not enough to solve the widespread problems, and (b) Davis’s complicated plan is based on too many faulty assumptions about the extent that his moves can reduce power demand, cut wholesale prices and spur more long-term electricity deals at relatively low prices.

On Monday, Davis previewed a radically slimmed-down 2001-02 state budget, hit by the double-whammy of billions of dollars of electricity purchases at the same time the slowing national and state economies are producing less tax revenue. The governor is blaming the Republican minority in the legislature for causing budget problems to escalate by not supporting last week’s state bond issue vote, so it could go into effect immediately as an emergency measure. Other analysts blame a slow-down in the economy.

Two new power plants that will be available this summer were approved last week adding 545 MW. Also approved was a new baseload plant in the California-Arizona border town of Blythe, which will add 500 MW in two years.

AES Corp. also announced Monday that AES Huntington Beach received its certification from the California Energy Commission to commence construction on the refurbishment of two gas-fired units that will add an additional 450 MW of generation in the electricity-strapped state. The two units were retired in 1995 prior to AES ownership.

Ed Blackford, president and site manager for AES Huntington Beach, stated, “Not only will these units be on line in time to address California’s urgent need for electricity this summer, but the state-of-the-art modifications will make this plant one of the cleanest gas-fired plants in California.”

In addition, the South Coast Air Quality Management District (SCAQMD), the four-county air pollution regulatory board covering Los Angeles and Orange Counties, okayed new procedures to allow power plants to exceed air emission limits this summer in return for commitments to lower their overall emissions longer term.

Resuming earlier calls for potential drastic action, State Treasurer Phil Angelides said the only solution to continuing high wholesale prices will be for the state to seize the power plants. He said the state cannot survive the peak-demand periods of the summer if generators continue to “back us to the wall.” The head of the state’s independent power producers’ trade association, Jan Smutny-Jones countered that “flying a California Bear flag over the plants will not solve the problem.”

Reliant Energy Vice President John Stout, who was questioned last week by NGI on the possible seizure of the plants, pointed out that the major cost is fuel, and the state will still have to buy the fuel. He said Reliant already had offered to run its plants for 2 cents/kw if the state would provide the fuel, but state officials did not take them up on the offer.

Meanwhile, a federal bankruptcy judge wrestled with requests from Pacific Gas & Electric to place a restraining order against what it argues is a ill-advised plan by the consumer group TURN to take back billions of dollars in stranded cost payments as part of the way to work the utility out of its financial quagmire. Financial analysts noted the growing uncertainty surrounding all of California’s attempted solutions.

In separate action over the past weekend, Davis blasted President Bush’s Saturday radio address, previewing his proposed energy strategy to be unveiled later this week, noting that in the one area that the federal government has clear power — over wholesale energy prices — the Bush Administration’s federal regulators “have failed to discharge (their) responsibility.”

“I hope that President Bush and I (ultimately) can agree that any worthy energy policy must address the price gouging of consumers by greedy suppliers, particularly in states like California that are working valiantly to bring additional supply on line,” the governor said in a prepared statement Saturday.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.