[cdn-nucl-l] Davis handling of electrical power crisis in California

["Jerry Cuttler" <jerrycuttler@rogers.com>]

Amazing story of the California experience!
Combination of deregulation and lack of timely intervention by state
government.

----- Original Message ----- 
From: EUGENE CRAMER
To: mbrexchange@list.ans.org
Sent: Monday, September 29, 2003 12:15 AM
Subject: [MbrExchange] EnLG 2003SEP28 If Davis tenure is short-circuited,
many will look to his handling of electrical crisis.

Could it be lights out? If Davis tenure is short-circuited, many will look
to his handling of electrical crisis.

The Orange County Register PAGE 3 FEATURE Sunday, September 28, 2003

First, there was deregulation; then there was Davis

Some key moments in California's electricity crisis:

THE PRELUDE

1996
Gov. Pete Wilson signs the deregulation law, allowing cost of power to be
determined by market forces.

1998
Gray Davis elected governor.

THE CRISIS

2000
" Electricity prices climb. The effect is felt first in San Diego and south
Orange County, then throughout the state. In the spring, energy executives
warn Davis a crisis looms. By May, energy costs have risen 300 percent in
San Diego. Summer shortages reported.

" Consumer groups, lawmakers and utilities demand Davis intervene with
emergency authority. He declines.

" Edison and PG&E, unlike SDG&E, are unable to pass their costs on to
consumers because, by law, they can't raise their rates. Edison loses $1
billion by the end of July.

" The Davis administration - and others - blame the crisis on energy
profiteers, federal inaction, the failure of previous administrations to
build power plants and the flawed deregulation law.

" On July 31, Duke Energy offers to sell California 2,000 megawatt hours at
$55 per megawatt - less than the state was paying in the spot market at the
time. Davis declines. Other power companies also offer long-term contracts.
All are rejected.

" On Aug. 2, Davis issues executive orders to speed up power-plant licensing
and cut energy consumption. He asks the attorney general to investigate
possible price gouging.

2001
" Early January: Davis threatens "drastic action" - possibly including
seizing power plants.
" Jan. 17: Davis orders the state to buy energy on behalf of credit-starved
utilities.
" The spot-market price of energy reaches $1,000 per megawatt. The state
suffers rolling blackouts Jan. 17, 18 and 21.
" Consumer groups and state Treasurer Phil Angelides say Davis should seize
power plants. He declines.
" PG&E declares bankruptcy.
" The Davis administration buys $43 billion worth of energy through long-
and short-term contracts. The average cost per megawatt is about $80; later,
the market price drops to the $50 range. Also, some contracts require
California to buy power when it doesn't need it, forcing the state to sell
back energy for cents on the dollar.

THE AFTERMATH
" Price tag of energy crisis is put at $50 billion.
" Davis appeals to the Federal Energy Regulatory Commission, demanding
nearly $10 billion in refunds for California consumers. Consumers might get
back $3.2 billion, although that hasn't happened yet and many believe it
never will.
" Davis renegotiates the $43 billion in contracts down to about $35 billion.

////////////////////////  full story ////////////////////
SACRAMENTO Gov. Gray Davis confronted California's electricity crisis in
fits and starts, at first hesitant as outraged consumers and utilities
clamored for help, then fearful that a misstep could cost him votes as the
state spent $50 million a day to keep the lights on.

Foes and some supporters of the governor agree that he didn't intervene
early enough and forcefully enough in the crisis during the first half of
2000. They say he missed an early chance to buy power at reasonable prices
and that he declined to raise rates because he feared the political fallout.

They also said Davis was bluffed by wily energy merchants, who pushed prices
through the roof because they knew he wanted to avoid blackouts at all
costs.

"There was a game of electric chicken going on," said San Diego consumer
advocate Michael Shames.

Two years later, Davis said this: "I know many of you feel that I was too
slow to act during the energy crisis. I accept that criticism. I played the
hand I was dealt as best I could."

Voters will pass judgment Oct. 7, in part, on his handling of the crisis.

It erupted in spring 2000 in San Diego. The governor's first major actions
occurred in August, when he issued orders to speed up power-plant licensing
and boost conservation, while asking the state attorney general to
investigate the electricity market.

Energy experts acknowledge now that delays occurred but that what appears
clear in hindsight was obscure during this time of great confusion.

"I give him great credit," said Sen. Joe Dunn, D-Santa Ana, who headed a
Senate investigation into alleged market manipulation. "As we rolled into
the spring and summer of 2000, the market was getting more and more
dysfunctional."

Davis demanded that federal energy regulators step in. He approved
conservation measures. He set up task forces to resolve the problem. He met
with power company executives and threatened sanctions to force action. He
lobbied for wholesale caps on prices, which went from $750 per megawatt hour
at the beginning of the year to $250 by the fall, and then were reduced
further to $100 - although this was still more than double the pre-crisis
cost of energy.

"There wasn't a thing that we could have done that we didn't do," said
Michael Kahn, picked by Davis to head the state's power grid at the height
of the crisis.

In the end, California's strapped power grid suffered 39 days of high
emergency between Dec. 7, 2000, and summer 2001, as the cost of wholesale
power skyrocketed 10-fold and beyond. On seven of those days, the state had
rolling blackouts. In 1999, the state's electric bill was about $7 billion.
In 2000 and 2001, it was about $27 billion each year.

By spring 2000, San Diego's electricity rates were spiraling as SDG&E
struggled to pass on the soaring wholesale costs to its customers. The
state's two largest utilities, Southern California Edison and Pacific Gas
and Electric Co., racked up huge debts. They were refused the right to raise
rates.

Many agree that Davis' Jan. 17, 2001, decision - his most important action
during the crisis - to order the state to buy energy for the utilities on
the spot market ultimately broke the back of the crisis, although at
enormous cost to the state.

The state also bought $43 billion worth of future energy on contract, which
ultimately stabilized the roiling market. By the middle of 2001, the
skyrocketing prices were over.

But what Davis did, and when he did it, is not nearly as significant as what
he didn't do, his sharpest critics contend.

"In the spring of 2000, the merchant generators met with him personally,
warning him of rising costs and potential shortages. The reaction we got was
just a wave of the hand," said Gary Ackerman of the Western Power Trading
Forum.

At least four power companies offered long-term energy contracts at prices
slightly higher than existed before the crisis but far less than hit the
state just weeks later. One company, Duke Energy, wrote directly to Davis on
July 31, offering 2,000 megawatt hours over five years at $55 per megawatt.
Davis declined. Later, prices hit $1,000 per megawatt.

One consumer critic said Davis' fundamental problem was failing to act early
in three critical areas - seizing power plants, raising rates and signing
power contracts - because he feared political backlash.

"He stood on the sidelines as opportunity after opportunity passed. He had
his finger up, testing the political winds," said Doug Heller of the
Foundation for Taxpayer and Consumer Rights.