Electric Deregulation California's Christmas Grinch

 

LOS ANGELES -- Hailed in many states as a way to increase competition and lower customers' power bills, electric utility deregulation in California has turned out to be the grinch that is stealing Christmas cheer.

As the state faces an unprecedented power supply emergency, residents are being urged to curb their use of electricity, including shutting off elaborate holiday displays.

And in a tacit acknowledgement that California still has much to learn in its deregulation experiment, Gov. Gray Davis said last week that much of the crisis could be attributed to its newly deregulated power system.

"We're simply not ready for deregulation in California," Davis said in a statement televised statewide.

"California is riding point on this deregulation experiment. The problem is, I cant control the process. There are too many players. I'm trying to use a combination of reforms, good ideas and guilt to produce the desired result," he said.

While the state has experienced isolated power supply troubles in the past, a combination of cold weather, lack of imported electricity and power plants shut down for long-delayed repairs forced officials to declare the state's first ever Stage Three supply emergency on Thursday.

The warning, which indicates that power reserves have fallen below 1.5 percent, automatically triggers rolling blackouts that last up to one hour.

Officials from the Independent System Operator, manager of the state's power grid, said that blackouts had not yet been ordered but remained a possibility.

"This is the first time that we have ever issued this level of warning, whether in the summer or the winter," said ISO spokeswoman Stephanie McCorkle.

While other factors have been cited in the power supply troubles, it is the deregulation process that is getting much of the blame.

In 1996, California's utility monopolies were ordered to begin gradual transition toward deregulation, selling off their own power generating stations and being forced to buy electricity on the open market.

While supporters of the plan said it would raise competitiveness and lower rates, soaring energy costs turned out to produce the exact opposite result. And while customers are protected by a legislated rate freeze during the deregulation transition period, that will end in 2002.

Several new power plants are under construction in California, but none of them will be operational before next summer, leaving state utility companies at the mercy of energy suppliers in the region. And with colder than expected winters already hitting Northern California, Washington and Oregon, energy supplies throughout the West are dwindling.

The problems with deregulation are sharply contrasted in the Los Angeles region. While Southern California Edison, a deregulated carrier which supplies power to much of suburban Los Angeles, is ordering businesses to scale back usage and asking residential customers to conserve, customers on the city power grid are fine.

"Because we have not gone through deregulation yet, we have all the power that we need to supply our customers. They can string up whatever lights they want," said David Freeman, general manager of the city's Department of Water and Power.

In fact, the DWP is in such good shape that it is selling excess energy at a profit of approximately $500,000 a day. The DWP's good fortune came as a surprise to many. Over the past decade, the department had been criticized for building new power plants that led to a $4 billion debt three years ago.

Now, the DWP is promising to eliminate the debt by 2003 and lower customer rates by 10 percent.

Meanwhile, at the College of the Canyons in the suburb of Santa Clarita, the power crisis has forced administrators into a tough position.

With students in the final week of classes and preparing for finals, the college was ordered to shut off power twice in the past week. Under an "interruptible rate" agreement that the college has with SoCalEdison, they receive a reduced 6.9 cent per kilowatt/hour rate in normal times.

In return, the college must shut down its grid when asked or face a punitive rate of $9 per kilowatt/hour.

"Unfortunately, we are just not able to comply with the shutdown request," said school spokesperson Sue Bozman. "We know that paying this higher rate is a waste of taxpayer money, but we have to put the safety and well being of our students at the fore."

Bozman said that the school has requested a delay in the rate until December 16, when the campus will be shut down for winter break. The punitive rate is costing the school over $100,000 a day, Bozman said. Edison officials declined the request.

"The situation continues to be very serious, which is why we need everyones cooperation in conserving energy. We don't want to be a grinch about it, but that means cutting down on nonessential usage like Christmas lights during peak hours," said Edison senior vice president Richard Rosenblum.

Regardless of how California utilities and their customers weather the current crisis, it is clear that the confusion caused by deregulation has been a major factor.

As ISO officials attempted to monitor the supply situation on Thursday, utilities were forced into ever-faster decisions. While they normally try to buy power a day in advance, that lead time had been cut to 10 minutes by late afternoon.

And as prices for that imported power continued to skyrocket, it was unclear what effect that would have on consumers.

"We do not know what this is going to do to the power market. We are just trying to deal with this emergency right now," said McCorkle, the ISO spokesperson.

 
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