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July - Duke Energy Employee Advocate

Deregulation - December, 2000

"The Love of Money is the Root of ALL Evil"

Davis Faces Growing Criticism on Power Crisis
L. A. Times - By DAN MORAIN - December 31, 2000

Gov. Gray Davis deals with California's electricity crisis by sounding common refrains: His Republican predecessor signed the bill that deregulated electricity, and federal regulators and out-of-state power producers are the villains.

"I don't have the legal authority to deal with all the actors," Davis told reporters here two weeks ago. On a PBS business news show last week, he said: "Generators can charge anything they want today, and the only people who have any control over them is the Federal Energy Regulatory Commission, which has refused to take any control."

But an increasing chorus of critics say Davis failed to heed early warnings of power shortages, has shied away from tough, decisive action, and has dwelt too long on his rhetorical attacks.

To be sure, Davis recognizes the political implications of the situation. The governor, a prodigious fund-raiser, canceled a dinner that was to be put on in early December by energy producers. It would probably have netted his reelection campaign roughly $100,000.

Davis raised more than $21 million for his reelection campaign in his first 18 months in office, including more than $500,000 from energy producers, marketers and utilities.

Energy industry representatives were among the recipients of invitations to fund-raisers in Sacramento and Los Angeles "celebrating" Davis' birthday earlier this month. A ticket cost $5,000.

Watchdog's Quiz Energy Officials at PUC Hearing
L. A. Times - By NANCY VOGEL - December 30, 2000

Bouncing from outrage to despair, consumer advocates grilled utility executives Friday for the first time, demanding to know how they could justify million-dollar salaries and fat shareholder dividends while pleading poverty before the state Public Utilities Commission.

Executives of Pacific Gas & Electric, who are demanding a 26% electricity rate increase that would be effective next week, patiently explained that the money they have spent on executive compensation and dividends is small change compared to their mounting multibillion-dollar losses.

They also acknowledged that they are unlikely to be satisfied with a 26% increase and will expect follow-up rate hikes, for a total of about 40% over the next two years.

Southern California Edison, whose officers are scheduled to be cross-examined by consumer advocates when the PUC hearing resumes Tuesday, is seeking an even larger rate increase--an average of 30% immediately, to be followed by an undetermined number of 5% rate hikes over the next two years. The immediate increase would in fact amount to 33% for most residential customers, but less for low-income households and 30% for most businesses.

The two utilities say they have been driven to the brink of insolvency by an unexpected surge in wholesale electricity prices in the state's newly deregulated market.

Municipal utilities such as the Los Angeles Department of Water and Power were not deregulated and are not seeking rate hikes.

Consumer advocates appeared frustrated and, at times, floored by the figures being thrown around by the private utility officials Friday.

"It's almost like the kind of thing nations have gone to war over," declared Jason Zeller, an attorney with the PUC's independent consumer arm, the Office of Ratepayer Advocates, expressing outrage over hundreds of millions of dollars being made by electricity wholesalers at the expense of the utilities and their customers…

Edison Seeks OK for 2 Years of Rate Hikes
L. A. Times - By MITCHELL LANDSBERG and NANCY VOGEL - December 29, 2000

The company's proposal would allow increases every six months. The cumulative boost could be as high as 76%.

In addition to demanding an immediate 30% increase in electricity rates, Southern California Edison is asking the state Public Utilities Commission for the right to continue raising bills for the next two years, officials said Thursday.

Rates also could decline under Edison's proposal. But in a worst-case scenario and taking a variety of complications into account, Edison officials concede, residential rates could soar by 76% over the next two years, with the average single-family residential bill rising from $58 to $100 a month.

Consumer advocates, who held an unusual summit meeting with utility executives Thursday, said they fear rates could rise even more for consumers who rely on Edison and Pacific Gas & Electric, the state's two biggest utilities. They worry the rate hike requests are masking an attempt to pass along the full cost of huge wholesale price increases to consumers, which could raise Edison's rates by 80% or more.

Consumer advocate Ralph Nader, fresh from his Green Party presidential campaign, was among those turning out for the hearings, which could prove to be an important milestone in the national deregulation movement. Nader and other consumer advocates maintain that California's pioneering effort to deregulate private utilities has been an unmitigated disaster for ratepayers, and has led to an energy crisis that has gripped the state for the last six months. "It is quite clear now that the alternatives before the people of California are either a coerced bailout . . . or bankruptcy by the major utilities in the state," Nader said in a news conference at PUC headquarters in downtown San Francisco.

Echoing suggestions of some local consumer advocates, he argued that bankruptcy would not disrupt electrical service, and would simply lead to the replacement of top utility executives with the "frugal supervision" of a bankruptcy court.

Nader praised the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District, both of which are publicly owned, for a sterling performance in serving customers and putting "human need over corporate greed." The municipal utilities were exempt from deregulation and are not seeking rate increases.

Power Crisis Generates Windfall for Suppliers
L. A. Times - By CHRIS KRAUL and NANCY VOGEL - December 27, 2000

A jump in profits is forecast for firms that provide the state's energy. Davis seeks advice from Greenspan.

California's power crisis surged through the political and financial worlds Tuesday as a sharp jump in the profit outlook of major electricity generators supplying California renewed controversy over alleged price gouging on the eve of public hearings to hike consumer bills.

The forecast of higher profits, which helped trigger a stock market rally in the key energy sector, came while Gov. Gray Davis met with Federal Reserve Chairman Alan Greenspan in Washington.

The governor asked for the meeting last week to seek Greenspan's advice on how to deal with a crisis that has put the state's two largest utilities at risk--they say they have racked up $8 billion in uncollected energy debts and continue to warn of bankruptcy--while posing a wider threat to the state's prosperity.

In a written statement afterward, Davis said that "deregulation of electricity has been a colossal failure so far." The governor also met with U.S. Treasury Secretary Lawrence Summers.

In a later interview on PBS-TV's "Nightly Business Report," Davis said he will use his State of the State address on Jan. 8 to outline his plans and encourage efforts to generate power in California and ask residents to use less of it. "I'm not going to let these generators making eight and nine hundred percent [profits] . . . unduly drive California to its knees."

Without releasing precise results, Williams Cos., a producer and trader of electricity and natural gas, said Tuesday that its fourth-quarter profit will "substantially exceed" expectations. That contributed to the rally in energy stocks, as did cold weather and continued volatility in U.S. electricity markets.

The higher projections for Williams, of Tulsa, Okla., whose previous quarter saw a quadrupling in net income, comes at a politically sensitive time, provoking outraged consumer groups to call for legislative relief, perhaps in the form of a windfall profits tax.

"The generators are having a great year because obviously that $8 billion of losses aren't just disappearing but [have] gone into the income statements of most of the generating companies," said Barry Abramson, senior utilities analyst at UBS Warburg in New York. "It's going from one pocket into a dozen other pockets."

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, said generators' rising profits show a "massive transfer of money from ratepayers into these companies' pockets." He described the upcoming PUC hearings as a "cover for a deal."

"There is no need to bail out the utilities. They asked for a free market, so they should seek a free-market solution by borrowing more money or by declaring bankruptcy, not sticking customers with the cost of their noncompetitiveness," he said.

Deregulation has failed to produce the cheaper wholesale rates as advertised. Just the opposite has occurred, with wholesale electricity costs skyrocketing because of unexpected growth in demand and shortages of generation capacity. The difference between frozen consumer rates and the sky-high wholesale costs has saddled the utilities with more than $8 billion in debt.

Richard Fernandez, a spokesman for Duke Energy North America, a major generator in the state, defended his industry's profits, describing the market as "basic supply and demand."

After hearings today and Thursday, the PUC is expected Jan. 4 to vote to lift the current consumer rate freeze and boost bills, although it remained unclear Tuesday by how much. The utilities have argued for increases of at least 17%.

Public Utilities Commissioner Carl W. Wood said Tuesday that the agenda for the two days of hearings is still being finalized. But he promised that consumer groups and utilities will be given a chance to be heard. The hearings also will give panel members an opportunity to cross-examine utility executives about their claims of financial woe. Audits of Edison and PG&E are underway and are expected to be finished soon, Wood said.

A Bittersweet Outcome
L. A. Times - By PETER Y. HONG - December 27, 2000

Harvey Rosenfield, who warned against electricity deregulation, says he has been proved right but regrets that it has come at such a cost to the public. Still he sees hope for more consumerist policies.

As power outages and higher utility bills loom in California, Harvey Rosenfield--the man who unsuccessfully fought electricity deregulation four years ago--doesn't say, "I told you so."

He says a lot more.

"All the people who were on the wrong side are being punished," Rosenfield said. "They're being exposed. Events have proved us right. It's just too bad it has come at this price."

Now, the consumer advocate and sound-bite master whose views were rejected by the Legislature in 1996 and by voters in 1998 may turn out to be as much a wise man as a wise guy.

Rosenfield is a fixture on television news reports, proclaiming that the people shouldn't pay for mistakes made by power brokers. Sacramento lawmakers fear his threat of a 2002 ballot initiative to re-regulate the electrical power industry enough to consider making major changes on their own.

The new energy crisis, Rosenfield says, could prompt a wave of consumer-protection policies after decades of free-market fever. "I can tell you that, right now, 'deregulation' has become a dirty word," he said.

With little money to wage publicity campaigns, Rosenfield has learned to become a master of the pointed made-for-TV one-liner. He can turn the gray people and issues of a topic such as utility regulation into saints and sinners in a black-and-white fight between good and evil.

He likens, for example, Edison Chief Executive John Bryson--who backed deregulation but now wants a rate increase--to "a child who kills his parents and calls himself an orphan."

Rosenfield, 48, savors conflict. He has since his high school days, when he published an underground newspaper, the Informer, in his hometown of Randolph, Mass.

The son of an accountant and a painter, Rosenfield studied psychology at Amherst College before getting law and international relations degrees at Georgetown University. It was at Georgetown, in Washington, D.C., that Rosenfield first worked with his mentor, Ralph Nader.

After six years of working with Nader-founded organizations, including the California Public Interest Research Group, Rosenfield founded his Santa Monica-based foundation in 1985.

Consumers Bitter as They Await Electricity Price Hikes
L. A. Times - By MATEA GOLD - December 24, 2000

Many people worry about the effects on family finances. Activists warn of the possibility of a "ratepayer rebellion" as customers face possible increases of at least 10%.

As California's energy crisis threatens to boil over, Los Angeles-area consumers facing the likely prospect of higher electricity bills are steaming.

About 11 million customers in Southern California and millions more around the state could be hit with rate hikes of at least 10% next year. That would happen if the state Public Utilities Commission lifted the freeze on electricity prices to bail out utilities that are struggling to cover rising power costs.

People across the region are watching the energy emergency with resentment, anger and glum resignation, many concerned that higher bills will squeeze their finances.

A 73-year-old Arcadia retiree on a fixed income worries that he'll have to dip into his savings. A family of five in Alhambra is bracing to cut back on groceries and entertainment. A Simi Valley woman plans to spend less on clothes for her family.

"It's going to be very hard," said Lorna Sanchez, 36, a single mother of three in Monrovia. "It's bad enough as it is. I'm just going to have to figure out how to cut back somewhere."

Underlying budget calculations is resentment: Why do we have to bail out this mess?

"It's ridiculous," said Patricia Verdugo, 54, as she did some last-minute holiday shopping in Alhambra. They should have never done deregulation in the first place. Once again, we end up footing the bill."

Verdugo said that during a recent stint on jury duty, the power crisis was the No. 1 topic among those waiting at the courthouse.

"People are angry and upset," she said. "I don't know anyone who isn't."

Amid the growing consumer frustration, the agency that operates the state's electricity grid remained on alert Saturday. The California Independent System Operator declared a Stage 2 emergency, the 36th of the year, because of congestion on the main transmission path that delivers power from Southland plants to Northern California. Consumer rights activists warned that though the public may not have tuned in as California's energy problems escalated during the last year, the possibility of getting hit in their own pocketbooks will spark a "ratepayer rebellion."

"They are correctly outraged," said Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. Calling deregulation a "scheme" that has gone bad, he said the utilities unfairly want the public to pay.

Rosenfield added that his group was inundated with telephone calls and e-mail Friday after consumers began hearing that the state PUC will consider lifting the current rate freeze on Pacific Gas & Electric Co. and Southern California Edison at a meeting Jan. 4.

"The question being asked by the average Californian--especially senior citizens and low-income people--is, 'Who's going to bail us out?' " he said.

Anything extra they spend on electricity will come from another part of their budget, he added. "Like not going out for coffee and tea on a Saturday," his wife said. For others, it could be more dire.

Tammie Meyers, 30, of Torrance said she's going to have to reduce cooking in her apartment's electric oven to keep down her family's bill, which is about $70 a month.

"Why don't they cut back the CEOs' salaries?" she asked.

Deborah Fay, owner of the boutique Romance Etc. in Long Beach, said she already pays $1,000 a month for electricity in her shop--and just received a notice from Edison that her store uses so much energy that she'll be put into a higher rate bracket.

"I'm freaking out about it," she said. "I can't even imagine spending more than $1,000 a month."

Many people voiced suspicion about whether the utilities really need to increase rates.

'I don't believe their story that they're losing money," said Cassandra Mason, 38, of Huntington Beach. "I think it's very sad," said Angela Owen, 46, of Newport Beach. When deregulation took effect, Owen said, she shopped around with electricity retailers, but their rates were higher than Edison's. Now, she blames the fiasco on everyone involved, including the utilities, elected officials and consumers like her who "don't know how to ask the right questions."

"I think mainly it's our fault," she said. "We all buy into things like this. We let the politicians do what they want."

Energy Crisis is Making People Feel Powerless
L. A. Times - December 24, 2000

Consumers are angry and suspicious about the stated need for rate hikes but think they have little recourse.

As California's energy crisis threatens to boil over, Orange County consumers facing the likely prospect of higher electricity bills are steaming.

About 11 million customers in Southern California and millions more around the state could be hit with rate hikes of at least 10% next year. That would happen if the state Public Utilities Commission lifted the freeze on electricity prices to bail out utilities that are struggling to cover rising power costs.

People across the region are watching the energy emergency with resentment, anger and glum resignation, many concerned that higher bills will squeeze their family finances.

"I don't believe their story that they're losing money," said Cassandra Mason, 38, of Huntington Beach. "They're just looking for a way to raise rates. I think we already pay too much."

A stay-at-home mother of two children, Mason said a 10% hike in her $100-a-month power bill will have her turning off lights and televisions.

"We're just going to have to pay it. What else are you going to do?" she asked. "We'll spend less on other things."

Like others, Mason doesn't fully understand the intricacies of the 1996 law that brought about deregulation in the power industry. Nor does she know which politicians are responsible for its passage. She places the blame for the crisis squarely at the feet of Southern California Edison and other utilities.

"It's poor management, poor planning," she said. "It's not like they're new to this business."

Underlying many consumers' budget calculations is resentment: Why do we have to bail out this mess? "You get skeptical," said Eric Johnson, 34, of Huntington Beach. "You don't know whether it's an opportunistic thing or whether it's something that's really needed."

"To me, it was all planned," said George Kindstrand, 67, of Santa Ana. "They knew what they were doing with this deregulation. When they say it was a big surprise how it worked out, don't believe them. They know. It's their job to know."

Kindstrand, who is retired and living on a pension, said he'll handle a rate hike by making sure lights and appliances are turned off when they aren't needed.

"Somebody's going to make a big profit on this," he said. "Somebody's going to make some real money. But it's not going to be the poor guy paying his electricity bill."

Amid the growing consumer frustration, the agency that operates the state's electricity grid remained on alert Saturday. The California Independent System Operator declared a Stage 2 emergency, the 36th of the year, because of congestion on the main transmission path that delivers power from Southland plants to Northern California.

Consumer-rights activists warned that while the public may not have tuned in as California's energy problems escalated during the last year, the possibility of getting hit in their own pocketbooks will spark a "ratepayer rebellion."

"They are correctly outraged," said Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. Calling deregulation a "scheme" that has gone bad, he said the utilities unfairly want the public to pay.

Rosenfield added that his group was inundated with telephone calls and e-mail Friday after consumers began hearing that the state PUC will consider lifting the current rate freeze on Pacific Gas & Electric Co. and Southern California Edison at a meeting Jan. 4.

"The question being asked by the average Californian--especially senior citizens and low-income people--is 'Who's going to bail us out?' " he said.

Wall Street analysts have warned that the state's two largest power companies face bankruptcy unless they can cover the skyrocketing costs of wholesale power. But 1996's deregulation of the industry froze the rates the utilities can charge for electricity. The cap is supposed to remain in place until March 2002.

The utilities argue that they have been covering the rising costs of wholesale energy by borrowing money. "Edison and PG&E have, for months now, in effect financed the costs that customers pay for electricity," said Tom Boyd, a spokesman for Southern California Edison. "We can only do that for so long."

Gov. Gray Davis has indicated support for a 10% rate hike, while the utilities have lobbied for at least 17%. The rate increases would not affect customers of Los Angeles' Department of Water and Power and other municipally owned firms, such as Anaheim's, that were exempted from deregulation.

For some, a rate hike could be dire.

Torrance resident Tammie Meyers, 30, said she's going to have to reduce cooking in her apartment's electric oven to keep down her family's bill, which is about $70 a month.

"Why don't they cut back the CEOs' salaries?" she asked.

Energy Deregulation Creates a Crisis and Sparks Acrimony
New York Times - December 23, 2000

California's great experiment with utility deregulation relies on the wisdom of the marketplace to keep things running, but as the threat of utility bankruptcies, sharply rising electric rates and dimmed Christmas lights grip the state, the marketplace has no clear idea of what to do.

Worse yet, it seems to many Californians, neither does anyone else, from political leaders who have every incentive to keep the state's economy humming to the agencies charged with keeping the lights on. In fact, things have grown so tense that these people are lashing out at one another, and in some cases are barely on speaking terms.

California's usually mild-mannered Democratic governor, Gray Davis, has sharply criticized federal regulators for dragging their feet, calling them "armchair Washington bureaucrats." Calling the deregulation experiment a disaster, Mr. Davis has also complained that those in charge of the state's power grid are not doing their jobs.

The chief executive of that network, in turn, freely admits that he purposely did not consult with the governor when the system neared a breakdown in mid-December.

The utilities, which were big contributors to the governor's 1998 campaign, say he has been slow to react to a crisis he was warned about months ago. Consumer advocates are also mad at Mr. Davis for meeting privately with the executives to work out a rate increase. To make matters worse, officials in surrounding states are angry about being pressured to sell their own scarce power to California.

All this would be mildly amusing for spectators if the world's sixth largest economy and the center of the technology revolution were not at stake. "The interested groups don't care if they drive this state into recession," said Joel Kotkin, a senior fellow at the Davenport Institute for Public Policy at Pepperdine University. "Essentially we are going to take an economy the size of the United Kingdom and cut the juice so it doesn't function."

Few people predicted the straits that California would be in when it decided in 1996 to deregulate its utility industry. Then, the state had plenty of electricity and most people thought that new competition would lower prices for consumers and businesses alike. But energy companies, worried that the end of regulation would mean the end of guaranteed profits, stopped building power plants in California, leaving the state unable to meet the demands of its booming economy.

Ground Zero for the energy crisis in California is a nondescript office park building in Folsom, a rural town 18 miles northeast of Sacramento.

It is the headquarters of the California Independent System Operator, the nonprofit group that manages 75 percent of the state's power grid. Two weeks ago Terry Winter, the chief executive of the independent operator, worried that his engineers were consumed with endless hours of haggling for spare megawatts to avoid daily blackouts, went behind Governor Davis's back and appealed to federal regulators to lift a price cap on electricity sold in California. That, he hoped, would keep the lights on.

Mr. Winter said that he and Mr. Davis have not talked for weeks - it is only their staffs that speak - despite the fact that wholesale electricity prices have skyrocketed and California's energy market was turning into "a big Turkish bazaar." Further, he explained, "If I called the governor, he would have said, `Don't make the call.' So do I violate his order? I had people on the floor exhausted."

Mr. Winter might have learned that Governor Davis and his staff had been quietly negotiating with two investment banks to guarantee loans to ensure the state's utility companies remained solvent, buying more time. Once the banks heard the price cap had been lifted, exposing them to unknowable losses, they balked on the loans, Mr. Davis said.

"If you've concluded I'm not a fan of the Independent System Operator, you are right," the governor said recently. "We've been spending too much time doing their job for them." The political stakes are high for Governor Davis, who is calling for more control. That's because President- elect George W. Bush is preparing to name a new Energy Secretary and his free-market outlook collides with that of the governor. Governor Davis has been seeking the counsel of experts recently and is expected to meet with Federal Reserve Chairman Alan Greenspan next week.

"These guys are all under enormous political pressure," said former Gov. Pete Wilson, a Republican, whose administration backed the deregulation legislation in 1996. "You can escape blame by assigning it to someone else."

Meanwhile, the Independent System Operator, born of deregulation in 1998 with the blessing of utility companies, politicians and regulators, lurches from calm to chaos almost hourly.

At about 8 a.m. on Dec. 13, power generators from the Northwest, worried about credit problems at California's two largest utilities, Southern California Edison and PG&E, balked at sending the state much- needed electricity.

Panic spread through headquarters there as more than three million homes were expected to go dark. Officials frantically called executives at power generators in the Northwest to "see what we could argue out of them," said the chief operating officer, Kellan Fluckiger. But as quickly as that crisis subsided, another surfaced. Governor Davis released the power generators' names, which are supposed to be kept private, angering one executive who threatened to cut off shipments altogether.

"Am I worried about people getting into accidents because they have no traffic lights? Of course," Mr. Fluckiger said that day, his eyes crimson from lack of sleep. "But I have no sense of what I need to do." Just who exactly has the power to address the concerns with the power generators is the cause of much friction. With deregulation, the authority over the power plants was transferred from California officials to the Federal Energy Regulatory Commission, which pursues a free market approach. This is frustrating to Governor Davis, who wants more control over the plants.

Some experts say the solution is not that complex. "I would advise them to take a break, say it isn't working and start all over," said Paul Joskow, the director of the Massachusetts Institute of Technology's Center for Energy and Environmental Policy Research.

But James J. Hoecker, the chairman of the California Energy Commission, which regulates new power plants, said California needs to get its own house in order. "Our disagreement is over how to solve the problem," he said, "not what the problem is."

In fact, a quick resolution may be forced on state officials by Southern California Edison and PG&E, which are threatened by insolvency because sky-rocketing wholesale power prices have left them with huge bills they cannot pass on to consumers.

"We need some leadership here," said John E. Bryson, chairman of Edison International, the parent of Southern California Edison, which today shed 400 contract labor jobs. "This has gone on for too long a time."

Whatever steps are taken to solve the financial crisis in the short-term, everyone agrees that more power plants and stringent conservation are needed. "We've got a ton of power plants in the pipeline and all of them are good," said Daniel Kirshner, an environmentalist who is on the board of the System Operator. "But we have to get the religion that energy conservation is even better."

More supply alone, though, is not enough, said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights. He said his group wanted a ballot initiative for 2002 that would seek to impose a wind-fall profits tax on power generators and suppliers, and create a public power agency with authority to build and operate power plants.

"This was politics that got us into this mess and it will take us politics to get us out," he said. That is little comfort to the engineers who are managing the electrical system this winter. On Tuesday, Mr. Fluckiger had a new crisis. An overburdened transmission line went out of service, making it difficult to transfer electricity from the deserts in the south to users in the north.

Now blackouts in Northern California are a possibility over the holiday weekend. I guess, Mr. Fluckiger said, "we would really be the Grinch who stole Christmas if we did that."

North Carolina Power Systems Group Argues against Electricity Deregulation
The News & Observer - December 21, 2000

A group representing the state's municipal power systems said Wednesday that lawmakers should put the brakes on a plan to begin deregulating the electric industry in North Carolina by 2005.

Jesse Tilton, the chief executive officer of ElectriCities, told a legislative study commission that his group is concerned by surging power rates and temporary blackouts in California, which has already opened its power market to competition.

"The lesson from California is that deregulation can go very wrong," Tilton said. "The commission should not offer any legislation until it can demonstrate that there will be benefit for the consumer."

Sen. David Hoyle said the legislative panel would consider the cities' proposal but would not take the issue off the table. Hoyle, a Gaston Democrat and co-chairman of the commission, acknowledged that the experiences this year in California have slowed North Carolina's deregulation momentum.

"We're slowing it down a bit," Hoyle said, "but deregulation is going to occur."

The legislative panel, which has been working for two years on a recommendation that it will give the General Assembly next month, in April endorsed a bare-bones plan to begin dismantling the state's power monopolies in four years. The new position of the 51 members of ElectriCities, an early supporter of deregulation, raised suspicions among some commissioners.

The municipal providers have been at the heart of the deregulation debate because of a $5.5 billion debt they incurred after investing in nuclear plants that Carolina Power & Light and Duke Power built two decades ago.

The cities would be unable to pay off the debt in a deregulated market and have resisted suggestions that they sell their systems and get out of the power business.

Lee Kindberg, a commission member from Charlotte who represents industrial customers, said the commission should move forward with deregulation, and that she was disappointed that ElectriCities would not move aside.

"Since Santa Claus is not filling ElectriCities' stockings, they are saying that no one can get their stockings filled," she said.

Henry Knight of Raleigh, who represents residential consumers, urged the panel to consider Tilton's suggestions. "We should not deny what he is saying just be cause we are upset with how they managed the debt," he said.

Summit Aims to Ease Power Crisis
L. A. Times - December 19, 2000

Federal, state and corporate leaders convene in Washington today in yet another effort to ease the energy crunch that has threatened to make 2000 the year the Christmas lights went out in California &

California's Legislature voted in 1996 to deregulate its electricity market in the belief that prices would fall in a free market. When the opposite occurred, and prices soared from $30 per megawatt-hour last December to more than $1,000 last week, some blamed deregulation, while others said there was nothing wrong with the concept, just the execution.

The utilities are also hoping to persuade the state to cushion their losses by raising the rates they charge consumers.

Utility Workers Union of America
Duke Energy Employee Advocate - December 19, 2000

Utility Workers Union of America members marched on Washington this year to complain about reckless utility deregulation. Deregulation is being used as an excuse to strip employees of benefits, while companies enjoy windfall profits. Read their story as posted on their website:

Keep Energy Safe, Affordable, and Reliable

More than 275 UWUA members fanned out over the nation's capital March 27-29 to warn political leaders of the perils of utility deregulation and the need for quality of service standards that protect consumers and workers.

"We came to Washington to bring a message to Congress," UWUA President Donald Wightman told the delegates to the 2000 UWUA Legislative Conference. "The safe, reliable utility system developed in this country over the years is in danger of being ripped apart."

Members could not have picked a better time to speak out about the fallout from the misguided utility deregulation efforts occurring in nearly half the states in the nation. A federal deregulation bill sponsored by Rep. Joe Barton (R-Texas) currently is before the House Commerce Committee and may soon move to the full House. Bills sponsored by Sen. Frank Murkowski (R-Alaska) and the Clinton administration also have been introduced.

"The Barton bill is a bad piece of legislation," said AFL-CIO President John Sweeney as he pledged the federation's support to oppose the measure. "It does nothing to protect consumers or workers, and it should have been dead on arrival." President Sweeney was on hand the last day of the conference to commend the union's unanimous presidential endorsement of Vice President Gore.

The Barton Bill fails to protect consumers by requiring utilities to meet minimum standards for safety and reliability. It also contains no provisions to give current employees priority consideration for job openings, retraining, continued health coverage and early retirement options in the event of mergers and ownership transfers.

Fundamental questions about safety, reliability and recovered costs from deregulated utilities must be answered before any discussion of federal deregulation takes place, Rep. John Dingell (D-Mich.), ranking member of the Commerce Committee, told the delegates. Current federal deregulation bills do not address the problems that have arisen from state-level deregulation.

"I'd like to know that the reliability we've grown accustomed to isn't being compromised," Dingell said. "I'm not sure I know what you get when you plug in a plug after deregulation. I don't want to see deregulation happen without answering these questions." Dingell pledged to fight any federal utility restructuring bill that does not ensure the reliability and safety of electric service.

Members at the conference recounted horror stories about how utility companies are cutting costs as they try to compete and increase profits in a deregulated market - even if it means sacrificing routine maintenance, skilled workers and basic infrastructural repair.

Utility service is suffering because companies have eliminated or not replaced skilled workers. The number of utility workers on the job nationwide has dropped by 27 percent from 1990 to 1998. In some states, including Ohio, Rhode Island and New Hampshire, declines have approached or passed 50 percent during that period. Fewer workers means fewer people available to maintain the system and respond to consumer needs.

The dangers resulting from lack of routing maintenance are greater than anybody realizes, said Phillip Trombly of the Brotherhood of Utility Workers. Trombly held up electrical contacts from one substation that hadn't been inspected in 15 years and had burned out. Inspections used to be required no less than every five years.

"Twenty of this substation's 27 contacts were burned, meaning the substation - only 20 feet away from a busy sidewalk - could have exploded," he said. "At the very least, the community it served was subject to the kind of brown-outs that damage TVs and computers."

Ironically, in spite of all that "cost-saving" by utility companies, everyday consumers aren't seeing the windfall savings they were promised.

"We said in 1996 that only Wall Street and big corporations would stand to save from deregulated utilities," said President Wightman. "In fact, residential and small business consumers have seen little savings, but are increasingly angry about the quality of service and reliability."

Wholesale prices in the Midwest rose to $7,000 per megawatt - 150-200 times the normal level - during the long, hot summers of 1998-99. Businesses are getting hit, too. Mid-sized manufacturers lost $3 billion during Chicago's July 1999 power failures.

Members at the conference urged Congress to provide states with guidance on quality of service and reliability standards. In the final report of the Department of Energy's Power Outage Study Team (POST) that was released in mid-March, the federal government itself recognizes the hazards a deregulated market can bring and the need for "mandatory reliability standards for bulk-power systems."

The POST report goes on to say that "increased uniformity in definitions and measurements is needed, and new measure of reliability should be developed. The federal government should promote these efforts." The Utility Workers have proposed quality of service standards that would set benchmarks for customer service, reliability, commodity losses and employee and public safety. When those benchmarks aren't met, utility companies must be held accountable. UWUA proposals include a $50 customer rebate paid if basic services aren't restored within 24 hours of interruption, for failure to keep mutually agreed-upon appointments or a lack of response to billing inquiries within 10 days.

Organized labor continues to be the strongest voice for utility consumers who are caught in the crossfire of a deregulating utility market, said Carl Wood, the former UWUA deregulation coordinator and now a California Commissioner of Public Utilities, in his workshop presentation to delegates.

"Labor has been among the few to step forward and say, 'the emperor has no clothes,' " Wood added. He pointed to a number of wins for California consumers that are tied directly to the active role played by organized labor - from the passage of legislation halting further natural gas deregulation to the establishment of fixed rebates to utility customers for poor service.

"We're on the front lines in this deregulation battle," said President Wightman. "We can offer eyewitness accounts of the disasters that deregulated utilities are causing daily." Workshops and regional meetings

While members used much of their time in Washington to make our voices heard on deregulation and quality of service standards, this year's legislative conference also boasted a wide range of educational and regional sessions with information members can use in their locals.

UWUA's success in pushing card check agreements played a big role in last year's tremendous membership growth - the highest in 25 years. Members got a chance to hear from the people on the ground who negotiated card check neutrality to boost their local membership. Members considered the pros and cons of alternative dispute resolution and interest-based negotiation in a workshop led by Professor Steve Goldberg of Northwestern University. Also outlined were the ins and outs of cash balance pension plans, which increasingly are being offered by utility companies instead of traditional defined benefit plans. Also under discussion was a computer package that can help local unions keep track of grievances, arbitrations, NLRB filings and member information. Phillip Doherty demonstrated the latest software from LaborSoft's new system, LaborForce 2000.

To make the case for quality of service standards, it is necessary to demonstrate how reliability and safety are threatened by the crumbling utility infrastructure, two UWUA executive board members told delegates to the 2000 UWUA Legislative Conference.

Phil Trombly, president of the Brotherhood of Utility Workers, and Bill Sterner pointed out that inspection standards and maintenance cycles are not being followed by most utilities, which have cut their workforces drastically and failed to hire and train new people to replace experienced hands.

"Due to the limited number of staff available, scheduled maintenance cannot be performed on the schedules the company itself sets in its manuals," Trombly said. "Just requiring the utilities to live up to their own standards that were in place 10 to 15 years ago would provide the needed reliability and safety for consumers."

Sterner provided some hints at how utility workers can document the deterioration of physical and electrical equipment, or facilities and infrastructure. "First of all, you can collect data on work that is not being done - depreciated poles, crossarms, wires and switches, untrimmed trees, transformers and lightning protection, street lighting, circuit maps, circuit fusing correlation, even the maintenance of equipment, tools and trucks."

Sterner also called for written requests to companies for their maintenance standards and timetables for inspections. Then, as soon as you receive the standards and the schedules, make a written request for the actual reports on the maintenance and inspections.

"You will learn that the companies are not meeting their own schedules," he said. "We need to document that fact, so we can make the case for quality of service standards.


Electricity Consumers Left in the Cold
Associated Press - December 18, 2000

As power companies, marketers, utilities and regulators gathered for pivotal talks seeking solutions to California's energy crisis, consumers were left out in the cold.

Behind closed doors, industry players were to meet Tuesday, seeking long-term price guarantees to avoid a repeat of the energy crunch that has tripled electricity bills in parts of the state. California's deregulation effort may have caused the problem, U.S. Energy Secretary Bill Richardson said Tuesday, but ``I believe we can fix it'' without returning to the old rules.

The goal is to ``come up with a broad set of principles to deal with the short-term and long-term problem,'' he told ABC's ``Good Morning America.'' Richardson also planned a meeting on the power issue Wednesday with governors of Western states.

``What we need to do is find ways that power can come into the West. There can be more electricity competition,'' he said.

California's two largest utilities also are negotiating privately with the administration of Gov. Gray Davis to avoid swallowing $8 billion in debt from paying market prices for electricity but being forced to charge regulated prices from customers.

``We are focused on finding a comprehensive solution,'' Pacific Gas & Electric's spokesman, Ron Low, said Monday. Consumers will likely have to pay more as a result of these talks in Washington and California, but watchdog groups have been left out.

``We're furious,'' said Mindy Spatt, spokeswoman for The Utility Reform Network, a San Francisco-based consumer advocacy group. ``They're negotiating again without us, and we're the ones expected to pick up the bill.''

Power Crisis Puts Spotlight on Middlemen (Duke)
L. A. Times - December 18, 2000

The utilities are billions of dollars in debt, power supplies have become so fickle that businesses risk losing millions, Christmas light displays have become a symbolic casualty, and higher rates loom for all consumers as the region copes with the most significant energy crisis in two decades.

But in between California's big three utilities and their millions of customers is a multilayered, subterranean world of market traders, middlemen and hedged bets.

It's comparable to the trading that goes on in the stock market, and it comes down to this: A single electron might be traded a dozen times before it reaches a computer or toaster--and the price may go up with every trade.

"This is legitimized gambling," said Gary Ackerman, executive director of Western Power Trading Forum, an association of players in California's electricity market.

Some middlemen are connected to firms that own power plants, such as Duke Energy Trading & Marketing, or Powerex, an arm of British Columbia's provincial utility. In those cases, the trading arms try to get the best possible price for the firms' electricity, perhaps locking up some in contracts and selling the rest on the spot market.

Power Shortage Nips Neighbors (Duke)
The Charlotte Observer - December 17, 2000

As California searches desperately outside the state for electricity, federal energy officials are taking the unusual step of ordering suppliers in the Northwest to send emergency electricity to California, where regulators say the state is at the brink of a breakdown in its power system.

And because California's demands are likely to continue in coming weeks, there are strong signs power problems are spreading across the West.

Six companies - including Charlotte-based Duke Energy - that bought power plants in California when the state deregulated its utilities have seen profits rise dramatically as the state copes with power shortages and skyrocketing prices. Critics say the companies are capitalizing on the West's predicament. Duke responds that it is helping to ease the problem, and is only a small part of the California market.

Duke Energy saw its third-quarter net income rise 74percent compared with the same period a year ago, according to company financial statements.

"We saw there was going to be a substantial need for power in California," said Tom Williams, director of public affairs for the western operations of Duke Energy Inc. "We have been very pleased with our returns."

The companies' incomes for July, August and September, when wholesale prices were rising, rose from 37 percent at Houston-based Reliant Energy Inc. to more than 221percent at Minneapolis-based NRG Energy Inc., according to third-quarter statements.

"It looks obscene," said Michael Shames, executive director of the San Diego-based Utility Consumers Action Network.

Williams says the company takes strong exception to suggestions it's profiting at the expense of California consumers.

"The thing we're a little sensitive about - Duke only has 4percent of the market in California," he said Saturday. The company plans to put much of its profits into modernizing and expanding plants. "We're one of the major players trying to fix the supply problem."

About one-fourth of California's generating capacity has been offline at times in recent weeks, prompting criticism and calls for an investigation by consumer advocates.

Power Shortage Sends Ripples Across West
New York Times - December 17, 2000

Power flows south in the summer and north in the winter. For years, that has been a cardinal rule in the vast interlocking grid that distributes electricity across the Western United States.

The rule makes perfect sense: the peak demand season for power in California and the Southwest comes in summer, while demand hits a high point in winter here in the Northwest, where nearly half of all homes are heated with electricity.

But as California searches desperately outside the state for electricity, one half of that basic rule has been abruptly rewritten. This week, federal energy officials took the unusual step of ordering suppliers in the Northwest to send emergency electricity to California, where regulators say the state is at the brink of a breakdown in its power system.

And because California's demands are likely to continue in coming weeks, there are strong signs that power problems are spreading across the West. Elected officials and energy executives are worrying aloud about possible electricity shortages and skyrocketing rates for consumers, as well as the environmental problems that could arise from the intense pressure to change the normal schedules for drawing down the water behind the huge network of hydroelectric dams in the Pacific Northwest.

In addition to those immediate concerns, the relatively good relations among Western states on power issues could also become a casualty of the emergency. Up until now, those states have shared supplies of electricity with few problems, as evidenced by the two-way transmission cycle that has routinely occurred in the past. But some finger-pointing has already begun.

"We are really at risk of having the state of California and its energy problems drag the rest of us down with it," Gov. John Kitzhaber of Oregon said today in calling for an energy summit meeting to work out the problems.

The governor, a Democrat, blamed California's "failed deregulation experiment" for the shortages.

"Events are happening so fast they're running over us," Mr. Kitzhaber said. "We're really in a reactive mode, and obviously the big dog on the block is California."

After decades of state-governed pricing, California decided to deregulate its power industry four years ago in a bold step that advocates said would soon deliver cheaper, cleaner and more efficient power across the state by allowing the marketplace to set rates. At the time, reserves were often as high as 30 percent. But while proponents of deregulation still say it will work in the long run, the state is by all accounts in a crunch these days, with shortages, soaring rates and widespread concerns that the crisis has been manufactured in some way to drive up the profits in selling electricity.

About one-fourth of California's generating capacity has been offline at times in recent weeks, prompting criticisms and calls for an investigation by consumer advocates. Industry officials say that many of the plants are in dire need of repair or regular maintenance after going full tilt to meet the record demands of last summer.

Whatever the reasons, the result has been pressure on other states, especially those in the Northwest, to deliver power south at precisely the time they would normally be looking to buy extra supplies to meet higher demand here.

It is not yet officially winter, but officials warn that a prolonged period of frigid temperatures could push supplies to a danger point. California has hovered at the edge of a genuine crisis in recent days, a so-called Stage 3 alert, in which electricity reserves fall to less than 1.5 percent of total supply and the authorities can order rolling blackouts to cope with the problem...

Los Angeles Public Power System Avoids California Energy Crisis
San Jose Mercury News - December 17, 2000

While an unprecedented power shortage has left most of California bracing for blackouts and high bills, Los Angeles is humming along without a worry and even expects a rate discount.

The reason? Los Angeles is among about three dozen cities, towns and rural districts in California that decided long ago to provide their own electric service, and sat out the state's power deregulation experiment.

Once thought doomed to extinction by modern market competition, fusty old public power is looking pretty good these days. So good, in fact, that a number of cities, from San Francisco, to San Diego, are talking about starting their own municipal electric service. San Jose has even tossed about the idea.

Los Angeles has no regrets about sticking with municipal power.

"We heard all the promises of deregulation," said Darlene Battle, spokeswoman for Los Angeles Department of Water and Power.

"Investor-owned utilities would sell off their generation, get rid of their debt and drop prices, and we'd be stuck in this death spiral and wouldn't be able to compete," Battle said. "It did seem like we were a dinosaur -- here we were with these power plants and all this debt. But it's worked out quite differently than anyone thought."

So LADWP has been able to sell an average of 1,200 megawatts a day onto the strained power grid serving the rest of California, reaping millions in profits, Battle said. Those profits will allow LADWP to pay off its $4 billion power-plant debt by 2003 and give its customers a 10 percent rate discount, she said.

But while the state's major corporate utilities are planning to pass $8 billion in debt from buying overpriced power on to customers, municipal utilities are boasting the same low rates and even mulling discounts.

The prospect of lower rates that once fueled calls for deregulation is now driving efforts in the San Francisco and San Diego areas to form municipal utility districts. San Jose leaders are talking about the idea too.

"You take out the profit motive and your rates are cheaper," said Joel Ventresca, who's leading a campaign to form a municipal utility district for San Francisco and neighboring Brisbane.

Public utility electric rates nationwide were 23 percent less than those of their corporate competitors in 1998, the most recent figures available, according to the American Public Power Association's 2000 annual report.

In the San Diego area, where customers saw their electric bills triple last summer, the city of San Marcos passed a resolution to form a municipal utility. San Diego County and the cities of Chula Vista and Escondido are studying the idea.

In San Jose, city leaders are planning an energy summit early next year, and some say public utility service will be considered.

State lawmakers are even considering public ownership of the electric grid and some power plants, backpedaling on their 1996 deregulation law that entrusted power supplies to the private sector.

Average residential bills at Bay Area public utilities are lower than those at Pacific Gas & Electric Co. -- $40 at Santa Clara's Silicon Valley Power, $31 in the city of Palo Alto and $49 at Alameda Power and Telecom.

Government Acts to Calm Energy Markets
New York Times - December 16, 2000

The Federal Energy Regulatory Commission took action today to protect Californians against the recent volatility in the wholesale electricity market that has brought soaring power prices, threats of blackouts and perils of insolvency for the state's largest utilities.

But the commission's steps were of little comfort to California officials and consumer groups, who said the commission did not go far enough.

Gov. Gray Davis said the situation remained sufficiently critical and that he would call a special session of the California Legislature to consider re-establishing state authority to inspect private power plants as well as replacing board members of the group that runs the power grid.

The federal commission, which oversees wholesale electricity prices, ordered that utility companies would not be required to buy or sell electricity through the California Power Exchange, but instead be encouraged to enter into long-term contracts of two years or more with power generators as a way to avoid the high prices now being paid in the market.

As a result of the deregulation of California's energy market two years ago, public utilities, like Southern California Edison and Pacific Gas and Electric, were instructed to buy and sell power through the exchange, in part, to block sweetheart deals with power generators.

But in recent weeks, the California Independent System Operator, the nonprofit group that manages the state's power grid, has been forced to scramble daily for as much as one-third of the electricity the utility companies need to keep lights on in the state.

Electricity prices for peak hours have soared to $1,400 per megawatt per hour, a more than 20-fold increase from last year. The Independent System Operator has been spending an additional $50 million to $100 million a day for electricity, costs that are passed onto utility companies and ultimately consumers.

Long-term contracts would allow utilities to plan spending instead of being subject to the whims of a daily market. But they may not be the best solution, consumer activists said.

"These contracts will not ensure fair and appropriate energy prices," said Douglas Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights. "Rather they will only lock California consumers into whatever private deals the utilities arrange with the private power generators."

Such contracts would take the pressure off the Independent System Operator, which is run largely by engineers who have been reduced, in part, to commodities traders forced to haggle over prices.

Two weeks ago, consumers began to face possible blackouts because of an unusually large number of power plants in California that were not operating either because of maintenance or for fear of violating air quality standards. The situation worsened this week, as prices for wholesale energy continued to soar and Wall Street analysts downgraded the stocks of some California utility companies out of concern that the energy problems would threaten earnings.

In addition to that, utility executives themselves have complained that the high prices being paid for electricity could leave them bankrupt. As a result, some power generators in the Northwest have balked at selling power to California fearing the they would never get paid by utilities.

Consumer groups and utility companies were no more pleased with the commission's order than Governor Davis. A news release from Pacific Gas and Electric said the commission's order, "leaves California electric customers exposed to price gouging and future electric supply reliability uncertainty."

SDG&E Says Duke Plays PR Game
December 15, 2000

Stung by a public perception that it is refusing to cut deals with unregulated marketers for fixed-price energy, San Diego Gas & Electric this week told the Federal Energy Regulatory Commission that Duke Energy is making public offers that it will not commit to paper. The December 14 letter to FERC complained that news media reports have said that Duke Energy Trading and Marketing "has made repeated offers to SDG&E that have been refused."

The letter from utility vice president Bill Reed claims to "correct the record" and expose that Duke's reports have been "calculated and disingenuous"

According to Reed, Duke's July offer of power at $50/MWh was made "in the press, but not in writing" at a time when SDG&E did not have the authority to enter bilateral contracts. Once the utility was able to cut such deals, Duke was not "the lowest bidder, and SDG&E entered into multiple contracts with other providers at prices below those offered by Duke."

Last month, Duke publicly claimed to be willing to serve all of SDG&E's 3,300 MW load at $60/MWh, but there was no written offer. When the utility asked for an offer, it said, one was made, but it had no firm price and "specifically declined to serve all of SDG&E's load."

Finally, when the utility conducted a solicitation last month, Duke entered a bid above $60 and then "withdrew its offer altogether."

Reed told FERC, "SDG&E has been unable to contract with Duke at the prices it claims to offer, because Duke refuses to contract at its publicly claimed prices"

California Screaming
New York Times - December 10, 2000

California's deregulated power industry, in which producers can sell electricity for whatever the traffic will bear, was supposed to deliver cheaper, cleaner power. But instead the state faces an electricity shortage so severe that the governor has turned off the lights on the official Christmas tree - a shortage that has proved highly profitable to power companies, and raised suspicions of market manipulation.

The experience raises questions about deregulation. And more broadly, it is a warning about the dangers of placing blind faith in markets.

True, part of California's problem is an unexpected surge in electricity demand, the byproduct of a booming economy. It's possible that the crisis would have happened even without deregulation.

But probably not. In the bad old days, monopolistic power companies were guaranteed a good profit even if their industry had excess capacity. So they built more capacity than they needed, enough to meet even unexpectedly high demand. But in the deregulated market, where prices fluctuate constantly, companies knew that if they overinvested, prices and profits would plunge. So they were reluctant to build new plants - which is why unexpectedly strong demand has led to shortages and soaring prices.

Now you could say that in the long run there is nothing wrong with that. Building extra generating capacity was costly, and the costs were passed on to consumers; while prices may fluctuate in a system with less slack, on average consumers will pay less. In fact, textbook economics suggests that it's actually a good thing that electricity prices skyrocket when supply runs short: that's what gives the power companies an incentive to invest. And so you could argue that no public intervention is warranted - indeed, that the caps that still place an upper limit on electricity prices only worsen the problem, that we should rely on market competition to solve the crisis.

But how competitive is the electricity market? What makes California's power crisis politically explosive is the suspicion that it's not just about inadequate capacity, but also about artificially inflated prices.

How might market manipulation work? Suppose that it's a hot July, with air-conditioners across the state running full blast and the power industry near the limits of its capacity. If some of that capacity suddenly went off line for whatever reason, the resulting shortage would send wholesale electricity prices sky high. So a large producer could actually increase its profits by inventing technical problems that shut down some of its generators, thereby driving up the price it gets on its remaining output.

Does this really happen? A recent National Bureau of Economic Research working paper by Severin Borenstein, James Bushnell and Frank Wolak cites evidence that exactly this kind of market manipulation took place in Britain before 1996 and in California during the summers of 1998 and 1999.

You wouldn't normally expect this to happen in colder months, when demand is lower. Still, state officials have understandably become suspicious about California's current power emergency - an emergency precipitated by the odd fact that about a quarter of the state's generating capacity is off line as the result of either scheduled repairs or breakdowns.

Maybe California power companies aren't rigging electricity prices. But they clearly have both the means and the incentive to do so - and you have to wonder why the deregulators didn't worry about this, why they didn't ask seemingly obvious questions about whether the market they proposed to create would really work as advertised.

And maybe that is the broader lesson of the debacle: Don't rush into a market solution when there are serious questions about whether the market will work. Both economic analysis and British experience should have rung warning bells about California's deregulation scheme; but those warnings were ignored - just as similar warnings are being ignored by enthusiasts for market solutions for everything from prescription drug coverage to education.

After a Summer of Power Woes, California is Hurting Again
New York Times - December 9, 2000

It was not supposed to be like this.

Families asked to turn off their Christmas lights. Businesses required to shut down for hours for days on end. Utility executives demanding relief from the governor, warning that the state's electrical system is on the verge of collapse.

After California's summer electricity troubles passed with the hot weather, most executives and state officials thought they had bought a year's time to find a solution to the energy problems. But despite a mild winter here so far, the state is again in the midst of a crisis so severe it was forced to take unprecedented measures on Thursday to avoid running out of power. And if this week's electricity shortage continues, Californians soon could be asked to darken their homes if rolling hourlong blackouts are instituted across the state as a last resort.

For most energy experts it is an unheard of situation given that air conditioners, a culprit last summer, are largely idle in the winter.

"People are in a heap of trouble," said S. David Freeman, general manager of the Los Angeles Department of Water and Power, which owns its own power generation operations and is not likely to be affected like other large cities. "This shouldn't happen this time of year."

But an unusually large number of the state's power generators were shut down for maintenance or to comply with air quality standards. On some days, as much as one-third of the electricity the state needed during the peak wintertime hours of 4 p.m. to 7 p.m. was not available, energy officials said. As such, the California Independent System Operator, which manages the electricity system for 75 percent of the state, had to pay as much as four times more to import it than what it might have paid a California producer. To make matters worse, wholesale natural gas prices are up as much as 10-fold over this time last year. With a cold front expected across the West this weekend, that means consumers not only run the risk of seeing their lights dimmed, but also sticker shock when they see their gas bills.

"I fear what will happen when these bills start to arrive," said Stephen L. Baum, chairman of energy services company Sempra Energy.

Mr. Baum said customers, including those served by Sempra's subsidiary, San Diego Gas and Electric, are likely to see rates double.

Of course, no one foresaw such a predicament four years ago, when California, the world's seventh-largest economy, decided to deregulate its electric industry. Then electricity reserves in the state were running as high as 30 percent, industry executives estimate. Most people believed that competition would lower prices for consumers and businesses alike. But now reserves are running dangerously low - as little as 1.5 percent daily - causing concern for utilities and politicians alike.

State officials, for their part, are trying to get to the bottom of why so many power plants are idled now. Air quality regulators today eased up on restrictions for some power plants to help provide much-needed electricity. But late Tuesday evening, representatives from the Public Utilities Commission showed up unannounced at several shut- down power plants, spanning the state from Oxnard, near Santa Barbara, to Shasta County in the north. There, said Loretta Lynch, president of the commission, they interviewed executives, examined machinery and reviewed maintenance logs to verify that indeed the plants were shut down for the reasons they gave.

Not everyone has welcomed the commission. Some power generators refused to let them in, Ms. Lynch said, although now they have all complied with the commission's requests. A report on the commission's finding could come next week, she added. But consumer advocates wonder if the commission visits will really yield any useful information.

How State's Consumers Lost With Electricity Deregulation
L. A. Times - December 9, 2000

It has become one of the most expensive public policy miscalculations in California history: A 1996 state deregulation plan that was supposed to make electricity cheaper instead shifted billions of dollars from utilities and consumers to energy companies and electricity brokers.

California businesses and residents paid $10.9 billion more for electricity last summer than the year before, with much of the money flowing to out-of-state energy firms. One of them, Houston-based Reliant Energy, saw its wholesale energy profits jump 600% during that time, with about $100 million coming from California.

The dramatic increases are the result of critical misjudgments by the California Public Utilities Commission and the state Legislature, the two main architects of the plan to open the market. Most serious were:

* A gross underestimation of demand as the state's economy came to life after years of recession and California's burgeoning computer-based businesses ate up electricity at rates unheard of in the old economy.

* A failure to anticipate that energy companies could easily exploit a mechanism designed to ensure the even flow of electricity. By holding back electricity and selling when the system was desperate, they could earn double the going rate.

* A faulty assumption that deregulation would prompt more competition right away: Hundreds of companies were expected to serve homeowners, but they didn't materialize. At times, a few power plant owners can effectively control the price of electricity.

In their attempt to foster competition, the designers of deregulation traded a monopoly in which government set rates for a new marketplace in which prices can fluctuate. The first place to suffer the consequences was San Diego, where prices doubled and tripled. By July, the monthly electric bill for William Scerni's coin laundry in a poor neighborhood in Oceanside jumped from $1,100 to $2,600. He raised the cost of a wash on his 30 most popular washing machines by 25 cents--which generated only $800 more a month.

This week, the panic spread. Officials begged customers to keep holiday lights off and warned of blackouts in a season when power demands are relatively low. To avoid blackouts, they bought power at astronomical prices that will be passed on to debt-burdened utilities.

A few cities--including Los Angeles, Glendale, Burbank, Riverside, Anaheim and Sacramento--are unaffected, because they own their power systems and are exempt from deregulation. But rate shock looms for 24 million Californians served by the state's two largest utilities, Southern California Edison and Pacific Gas & Electric Co.

"California was hailed as the model for the rest of the nation," said consumer advocate Harry Snyder. "And it has been a model--on how not to do it."

The lobbying dollars told the story of just how high the stakes were during the historic 1996 deregulation debate in Sacramento: The three utilities spent $4.3 million on lobbyists and pumped more than $1 million into political campaigns.

One of the great benefits of deregulation, lawmakers boasted in 1996, would be choice. Everybody from supermarket owners to apartment dwellers would be able to pick the company that purchased their electricity and mailed the monthly bill. Giant utilities that once controlled electricity from turbine to toaster would do nothing but maintain wires.

State Inspectors Visit Idled Duke Power Plants
L. A. Times - December 7, 2000

SACRAMENTO--State inspectors fanned out across California on Wednesday after being dispatched to learn why idled power plants are not generating electricity--a move that angered the plants' owners and reflects how undependable the state's electricity has become.

It is a move of dubious value, many experts said, given that the state lost control of power plants under deregulation.

Even the governor's office--which approved the inspections--and the state agencies involved agree that whether they are entitled to make such visits or order changes to plant operations is a legal gray area.

"They don't regulate us," said Tom Williams, spokesman for Duke Energy North America, which owns four large power plants, including one in Chula Vista that was visited by a state inspector Wednesday. "But we worked with him."

Deregulation - November - 2000