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'Perfect Storm' Caused California Energy Crisis, Experts Say - 2001-08-08

Californians are confronting some serious choices as they rebuild their power system and pay debts incurred by a failed plan to deregulate the state's energy market.

California's energy crisis was caused by what officials call the "perfect storm." Using the name of a book and film about a maritime disaster, they say a perfect convergence of circumstances led to the collapse of the state's power system.

The circumstances include a poorly thought-out plan to deregulate the state's electricity market, implemented when the population was growing and power use was increasing. The plan froze consumer-rates as a short-term transitional measure while wholesale power costs were freed to respond market pressures. That left utilities caught in the middle as their costs began to soar but their revenues stayed stable.

The deregulation plan forced utilities to sell their generating plants, making them dependent on outside power suppliers. The plan also promoted natural gas to fuel the state's generators, which was intended to reduce the use of pollutants such as coal. But when the price of natural gas skyrocketed, so did the price of power. A drought in the Pacific Northwest led to a shortage of hydroelectric generation, further reducing power supplies in the region.

As two large private utilities sank billions of dollars in debt, state officials intervened. They incurred billions of dollars of public debt as the California government bought power on behalf of the failing utilities.

One utility, Pacific Gas and Electric, filed for bankruptcy in April. Today, says spokesman John Nelson, the company is still operating as a court oversees its assets and works out a plan to pay creditors. "The lights are still on. All our employees are still at work. Our customers are still receiving power," he says. "We still generate more than half of what they need. We have devoted the last 100 days or so to securing the utility's ability to operate normally, to do what it needs on a day-to-day basis to keep the lights on and keep people at work."

The price of power has stabilized since the California government began to broker long-term contracts with outside suppliers early this year. And most people credit the state's Democratic governor, Gray Davis, with helping California get through the immediate crisis.

Mr. Davis wants to expand the state's role in the energy market, at least as a short-term measure, by buying the transmission lines of a second failing utility, Southern California Edison. The $3 billion sale would help that company stay solvent. Republican critics are working to block the purchase, and say the governor is pursuing a dangerous solution.

Anthony Pescetti is a California assemblyman who serves on two key energy committees. "I think the state should be doing what we did best," he says, " and that's to make sure that we have reliable service from the investor-owned utilities and we have prices that people can afford. I don't think the state should be in the business of a public power agency."

In Washington, the Republican Bush administration says the private marketplace is the best guarantor of cheap and reliable power. The administration says it has brokered a deal with private power companies to upgrade power transmission lines in central California, where a bottleneck limits the flow of power from south to north in the state.

But Governor Davis has harsh words for the administration and for federal regulators, who he says have too much faith in the private market. Mr. Davis accuses private companies of "price-gouging."

Consumer activists side with Governor Davis, but most would like him to go even further and create a permanent public power authority. Demanding "power to the people," they have recast a rallying cry for student radicals of the 1960s.

Many activists want to see more public utilities, like those that operate in Los Angeles and a number of other cities.

Paul Fenn of the group Local Power offers a different solution. He says cities and counties should be allowed to create collective authorities to buy power on the private market. He says two U.S. states have implemented this plan. "Massachusetts passed the statute in 1997, Ohio in 1999. And Ohio was the first to get off the ground," explains Mr. Fenn. " There has been just one metro area that's gone up [implemented the plan] with half-a-million people, and they chose Green Mountain Power as their supplier, just a few months ago."

Using the power of group buying, Mr. Fenn says the collection of communities in Ohio has found a cheap and reliable source of electrical energy.

Low temperatures this summer in California, coupled with conservation efforts, have kept the power flowing, and fears of numerous summertime blackouts have proven unfounded. New power plants are going on line, although California will not have an energy surplus for at least another two years.

In the meantime, technicians in Folsom, California, east of San Francisco, are keeping a watchful eye on the minute to minute operations of the state's power system.

Jim Detmers oversees the state power grid for the agency called the Independent System Operator. He says the power shortage is now the lesser of two problems. The more serious concern is the California's financial crisis, brought on by $14 billion in public debt. Mr. Detmers says the crisis can hurt California's neighbors and trading partners. "It has the potential of impacting not only California but the world, with impact to business, if we don't get all of the items resolved between the suppliers and the customers here in California, which is the place where the decisions need to be made," he says.

The California legislature has approved the sale of $13 billion in state bonds to investors, which will help pay the state's mounting debts.

Despite the financial drain, California's economy remains the fifth largest in the world. But future growth depends on a reliable and cheap source of electrical power.

One consumer activist says the crisis has provided a costly lesson in the importance of careful planning when making changes in the system for delivering an essential commodity.

(all photos except Gray Davis by VOA's Mike O'Sullivan )