CA Working Out Power Problems
Operating under a two-week extension of emergency orders to keep
power and gas supplies flowing, courtesy of the new Bush
administration, California government leaders last week conducted
the state's first-ever power auction for long-term contracts, and
continued to work on new legislation to revitalize its crumbling
Despite continuing Stage Three power alerts, rolling blackouts
were avoided, and despite the absence of any immediate state
regulatory or legislative relief, creditors and suppliers held off
forcing the state's two cash-strapped major investor-owned
utilities to file for bankruptcy.
It helped that the first major act of President Bush's new
Energy Secretary Spencer Abraham last Tuesday was to give Pacific
Gas & Electric and Southern California Edison another two weeks
of breathing room by extending emergency orders requiring gas and
power suppliers to continue supplying the cash-strapped utilities.
The emergency gas order now expires at 3 a.m. (EST) Feb. 7. The
California governor also added financial and energy heavyweights
from New York, Washington and Los Angeles to his advisory team.
In granting the extensions, Abraham urged the state to get to
work to solve its own problems. "Our action today is designed to
give the governor, the California legislature and other relevant
parties the time to take necessary action. I strongly urge the
parties to act immediately," said Abraham. He also said he was
keenly aware that other western states have expressed concerns
about their own supply situation and the impact the order is having
on power prices in their areas.
Despite the action, PG&E said it still was having trouble
getting gas suppliers to comply with the emergency order originally
issued Jan. 19. "The gas supply situation is [not good]," utility
spokeswoman Staci Homrig said Tuesday afternoon. Homrig said
PG&E's storage currently is well below 50% full, or less than
16 Bcf and depleting rapidly by about 500 MMcf/d to 1 Bcf/d.
The bail-out may come soon. Based on progress made by bipartisan
leadership in the state legislature last week, that body is
expected to enact omnibus new legislation fully sanctioning the
state's plunge into the power procurement business by Thursday,
Even without a threat of controlled blackouts Friday, the state
grid operator kept a Stage Three alert in effect and had to invoke
1,000 MW of interruptible load in southern California because of
supply problems out of state in the Southwest. There was also an
unexpected outage of 260 MW of generation in already-constrained
northern California. State regulators meeting in a special
"continuation meeting" Friday changed the state's interruptible
programs so large customers who voluntarily cut their power when
reserves get low on the grid will not face any penalties if they
decide to continue their business operations in the face of these
now too-frequent emergencies.
As of Friday, the leading legislative proposal would allow
utilities to recover their under-collections in rates, but in
return the state would get equity interest in the companies through
the issuance of state-backed warrants that eventually could be
cashed in when utility stock values improve. The proceeds would be
returned to taxpayers in the form of rebates. Alternately, the new
law that is eventually passed could also lead to the state
ultimately owning the private-sector utility hydroelectric and/or
Gov. Gray Davis last week reached out to the private and public
sector for an all-star cast of temporary, unpaid advisers that
include Robert Rubin, the former Clinton Administration treasury
secretary behind the scenes, and three others working with the
governor or parts of his administration.
The new legislative proposal gaining momentum last Friday would
provide state-backed bonds to help ease the utilities financial
woes while authorizing the state to sign some of the long-term
contracts it is analyzing in the wake of the sealed-bid power
auction completed Jan. 24.
Claiming bipartisan support among lawmakers and "conceptual
agreement" from the governor, state legislative Assembly Speaker
Bob Hertzberg proposed a bill in public hearings last Thursday (AB
18X) that he says will give the added relief to supply and
cash-constrained utilities while meeting four criteria: (1) no use
of taxpayer monies, (2) more market stability, (3) incent utilities
and others to get the best deal they can for consumers and (4)
provide economic stability.
"(Federal Reserve Chairman) Alan Greenspan in hearings before
the U.S. Senate (Jan. 25) emphasized the danger to California and
the nation's economy unless we increase our energy capacity and
reserves," Hertzberg said in summarizing his latest legislative
proposal, a version of which is expected to be made law by the end
of this month. "Now is the time to act. Now it is time to restore
power to California."
In the midst of proclaiming a successful power auction, whose
weighted average price was being debated by Friday, Davis used the
upbeat occasion to announce three temporary energy-related advisors
to state capital news media: Mike Peevey, a former utility
president-turned-successful-energy startup entrepreneur; S. David
Freeman, general manager of the nation's largest (successful)
municipal utility in Los Angeles and a veteran of more than four
decades in public power; and Frank Zarb, Nasdaq Stock Market CEO
and a former top-level energy adviser in the Nixon and Ford
Administrations in the 1970s.
Peevey, whose wife was elected to the state legislature in
November, will serve as Davis's energy adviser; Freeman will help
the state water resources department develop long-term power
contracts and Zarb will advise Davis on energy finance and market
Although it did not divulge peak-demand power price bids,
California's state-run auction turned up 39 bidders and a
weighted-average price of 6.9 cents/kWh, in the immediate aftermath
of the whirlwind 27-hour, sealed-bid power auction conducted over
the Internet. Now the real work begins --- that of face-to-face
negotiations with the most promising bidders --- something that
LADWP's 75-year-old veteran, Freeman, is expected to help the state
Tom Hannigan, director of the state water resource department
who oversaw the auction, said the state obtained "a useful sample
across all times of the day across the spectrum of the year, and we
are quite pleased with the initial results. I look forward to
looking through bids and developing some long-term contracts. Our
fundamental responsibility here is to purchase power at the best
possible prices for consumers and businesses."
On Wednesday as the bids from the Internet-based auction were
initially accessed, Davis said he expected a new law from the state
legislature by Feb. 1, giving the state authority to consummate
deals involving the best of the bids received in the
quick-turnaround auction. The bids covered six-month, three-, five-
and 10-year durations. Hearings in Sacramento continued on the
omnibus new law(s) that would give the state long-term buying
authority, but also decide how to handle operation of the utility
hydroelectric generation system and over-market purchased power
contracts with so-called "qualifying facilities" (QFs).
Bidders, utilities and other market participants expressed
initial enthusiasm for the state's new program, with San
Diego-based Sempra's CEO telling the financial community Thursday
that he was "encouraged" by the state auction.
"We don't yet have detailed information on the bids in the first
round --- and in my opinion that's what it is, a first round ---
but from what the governor has said, I am quite encouraged that we
are going to see power allocated to the three utilities at below
the costs that they have recently been paying in the wholesale
power market," said Sempra's CEO Stephen Baum. "That should ease
the financial situation of all three utilities and give us greater
liquidity, opening the way to further measures being discussed,
such as securitization of uncollected balances."
SDG&E Files for Pay-Up
Baum said SDG&E rate filing Wednesday was its plan for the
so-called "securitization" of its uncollected balance, noting that
other discussions are ongoing in Sacramento with respect to Pacific
Gas and Electric and Southern California Edison.
"I think there will be further auctions by the state and prices
will be obtained that are below the current spot prices, and so I
see an improving picture for all three utilities in California in
As another part of the state's meandering energy crisis,
SDG&E appealed to state regulators as the auction was being
completed for a five-year surcharge and a $100 million
cash-conservation program to avoid the financial torpor of its two
larger fellow private-sector utilities to be effective March 1,
SDG&E's parent company senior executives in announcing a 20%
earnings increase for 2000 on Thursday emphasized that they were
"acutely aware" of the near-bankruptcy status of the state's two
other private sector utilities. The San Diego utility is in a
different position because of special legislative protections it
received last year (AB 265).
In the meantime, both Edison and PG&E's utility in separate
federal court actions are attempting to force the California Public
Utilities Commission (CPUC) to raise the utilities' rates so they
can collect past and future under-collections because of the
continuing sky-high wholesale prices, which are not fully covered
by current rates. Edison's federal court case in the Los Angeles
district is farther along than PG&E's and a hearing was set
last week for Feb. 12 on the Edison suit.
Saying both the federal and state governments have failed to
stop the bleeding, SDG&E, which firs felt the sting of
California's deepening energy crisis last summer, filed Wednesday
with the CPUC for a five-year, 2.3 cents/kWh rateÿincrease and a
$100 million "cash-conservation" program toÿaddress its more than
$450 million in under-collections to avoid the financial crisis now
plaguing the state's other two major investor-owned utilities.
SDG&E also asked the CPUC to allow it to resume its normal
bill collection activities, which have been suspended since last
July to ease the burden on retail customers faced with skyrocketing
summer electricity bills.
Under a special state law passed last year, SDG&E re-froze
its retail rates at 6.5 cents/kWh, retroactive to June 1, but the
utility said over the past 30 days the wholesale power prices in
the state have averaged a record 25 cents/kWh, which SDG&E said
is seven times what they were a year ago.
SDG&E estimated the proposed hike would mean an increase of
$11.50 a month for the typical residential customer, whose current
average bill is $72 monthly.
Richard Nemec, Los Angeles