Friday, February 16, 2001

California has not fixed basic problems with its broken power system, despite a whirlwind of legislative activity and the commitment of more than $20 billion of state taxpayer funds to bail out the state’s failing utilities.
The state legislature, which has been in special session to address the power crisis since the beginning of the year, has not moved to correct the major flaws in its deregulation law that spawned the crisis and instead is moving toward an ill-considered state takeover and reregulation of the industry, said energy specialists, state regulators and members of Congress at a hearing of the House Energy and Commerce energy and air quality subcommittee yesterday.
Elements of the 1996 California deregulation law that backfired included requiring the state’s utilities to sell their generating facilities and buy most of their power on the spot market, where wholesale prices skyrocketed last year.
The gap between the soaring spot market prices and the low rates the utilities were allowed to charge consumers led to their amassing $12.5 billion of debt since last summer a burden that has brought them to the brink of bankruptcy.
Such errors, when combined with California’s failure to build new power plants and facilities in the last decade, led to the rolling blackouts and insolvency of California’s utilities last month, those testifying said.
“California’s current response appears to be too little too late,” said Lawrence J. Makovich of Cambridge Energy Research Associates, noting that Gov. Gray Davis only last week issued executive orders drastically cutting the time needed to build new power facilities in the state.
“The source of California’s far-reaching power crisis is a shortage,” he said, predicting at least 20 hours of extreme shortage that will force extensive rolling blackouts in the state this summer.
Though the state has tried to promote conservation with advertising campaigns and edicts, it has not allowed consumer electricity rates to rise to levels that would curb the state’s voracious demand for power and enable it to avert a severe crisis this summer, he said.
Rep. Christopher Cox, California Republican, said legislation being debated in the Democratic-led state legislature to take over the utilities’ power facilities in exchange for the state financing their debt burden with an $11 billion bailout is doomed to fail.
“We saw in spades how that didn’t work in the Soviet Union,” he said. Several committee members and public officials testifying at the hearing questioned whether the state has the expertise needed to run and maintain the transmission facilities it hopes to acquire.
“State leaders are again acting in haste and with partial understanding and moving the state towards a state-dominated if not state-run electricity system the likes of which is not seen outside of Eastern Europe,” said Adrian T. Moore, executive director of the Reason Public Policy Institute.
State power officials from Maryland, Ohio and Pennsylvania testified that their experiments with deregulation have been successful so far because they avoided California-style errors in moving from regulated to unregulated markets.
Mike Travieso, People’s Counsel of Maryland, said the regional wholesale market Maryland shares with the District, Pennsylvania, New Jersey and Delaware “is better designed and operated” than California’s broken market.
“In Maryland, while we have retail price freezes like in California, the utilities were able to retain their assets or arrange for long-term power purchases” that keep them out of insolvency, he said.
Carl Wood, a California Public Utilities commissioner, agreed that the state made mistakes when it forced utilities to sell their fuel-burning power plants and buy power on the spot market.
But he contended that the Federal Energy Regulatory Commission also is to blame because it failed to impose caps on wholesale prices even after it found in November that power suppliers were charging “unjust and unreasonable” rates in the spot market.
Curtis Hebert, chairman of the federal commission, strongly opposes such wholesale price controls, saying they will make the energy shortage worse, and Pres-
ident Bush has ruled out federal price controls as a solution to the California crisis.
Rep. Henry A. Waxman, California Democrat, said Californians “feel abandoned by President Bush” and “feel they are being held hostage by out-of-state energy generators.” Public opinion polls show many in the state want a return to state control and regulation.
Committee Chairman W.J. “Billy” Tauzin, Louisiana Republican, said other states should be careful not to repeat California’s mistakes, though he predicted areas such as New York, Chicago and Boston will face some problems this summer because they blocked the building of power and transmission facilities.

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