Friday, January 19, 2001

California’s power shortage intensified yesterday, leaving millions of residents without electricity for a second day as the state imposed rolling blackouts in northern and central areas.

As the state scrambled to keep the lights on, President-elect George W. Bush ruled out any federal bailout and called on the state to increase electricity production and “correct” the “flawed” deregulation law that led to the crisis.

“California must be aggressive about increasing the amount of supply of power. We cannot conserve our way to independence,” Mr. Bush told the Associated Press.

While many voters in California rejected Mr. Bush’s calls for increased energy production during the election and he lost the state by a landslide, he said the crisis validated his views.

“A lot of the harshest critics of a balanced environmental policy are beginning to have rolling blackouts in their communities,” he said.

Mr. Bush ruled out any cap on wholesale electricity prices, which the state’s Democratic politicians have demanded as a solution to the crisis.

“That’s not a fix,” he said. “Price controls would be a short-term delay of a needed solution.”

He said Washington could “help California help itself” by relaxing federal environmental regulations that stifle energy production. He said he was optimistic the power crisis can be contained within California.

As he spoke, California’s leaders warned that they are far short of the energy supplies needed to keep the lights on, prompting businesses to close and consumers to stock up on flashlights, generators and firewood.

Gov. Gray Davis, announcing a state of emergency Wednesday night, said the state had enough power on hand to supply only 45 percent of its needs. Power generators were reluctant to sell electricity to the state because of the impending bankruptcy of its two largest utilities, Southern California Edison Co. and Pacific Gas & Electric.

The state legislature acted on emergency legislation that Mr. Davis said is needed to prevent bankruptcy. But analysts said the bill, which empowers the state’s Department of Water Resources to buy power on behalf of the utilities, does little to prevent escalating financial and power failures.

“Great uncertainty remains, even if a deal is brokered with large power suppliers and acted upon by the legislature,” said analyst Steven Fetter with Fitch in New York. He noted that small generators that have received no payment from the utilities for weeks could force the big utilities into bankruptcy even if the big generators come to terms with the state.

Major issues remain unresolved, with little time to act, including what to do with $12 billion of existing utility debt, how much of the power system the state will take over and how much it will pay for power, he said. Generators have rejected the legislature’s plan to purchase power below cost at 5.5 cents per kilowatt hour.

The financial crisis spread on Wall Street yesterday as bond insurers disclosed that they face $1.3 billion in losses from defaults on the utilities’ bonds.

California tapped into its scarce supplies of hydroelectric power, draining power that was earmarked for spring consumption and leaving the state even more prone to power failures in the coming weeks, officials said.

“Yesterday I borrowed today’s water. Today, I borrowed tomorrow’s water,” said Kellan Fluckiger, chief operating officer of California’s Independent System Operator, which manages the power grid, adding that the state’s Fresno hydroelectric plant “is basically out of water.”

Mr. Fluckiger said power supplies also are drying up because of the credit crunch. “It is not clear to suppliers that the full faith and credit of the state of California is backing all of the deals,” he told a news conference.

“California and the West need to be prepared for the next couple of years for a power shortage,” he said. “We have a financial crisis going on as well as a supply crisis.”

The scarcity of supplies would be even worse without a federal emergency order that has been in place since Dec. 14 requiring Western power generators to keep supplying the state with electricity even though they have no assurance of payment.

Energy Secretary Bill Richardson, with only hours left in office, threatened to take electricity and gas producers to court if they refuse to comply with the order.

His presumed successor, Spencer Abraham, would not say at a confirmation hearing yesterday whether he would extend or enforce the order. He said he did not want to tip his hand because that might interfere with negotiations in the state aimed at resolving the crisis.

Western senators said the order exports California’s crisis to other Western states.

“We hope you’ll look at that order,” said Sen. Ron Wyden, Oregon Democrat. “We shouldn’t be forced to ship emergency power when we don’t have it.”

Sen. Dianne Feinstein, California Democrat, said the state’s lawmakers and power generators are trying to work out a deal to prevent the utilities’ bankruptcy by having the state secure their debt, stabilize power prices in long-term contracts and get construction of new generating plants under way.

But she said both sides have refused to compromise. Legislators have been reluctant to “bite the bullet” and change their “flawed” legislation, she said.

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