California's Energy Crisis – Who's to Blame?
January 31, 2001

by Curtis Lang & Jim Ridgeway		print version
		print version (graphics)

California's new $10 billion energy bailout plan is being greeted with skepticism by both industry experts and consumer groups. That’s not surprising because the state of California, which has already proven itself to be “the gang that couldn’t deregulate”, has rushed to implement an emergency plan that looks increasingly like a band-aid on a severe gut-shot wound.

Philip Angelides, the California state treasurer, told the New York Times this week that the bond package was “done pretty fast,'' and “we based it on some models, but we're not sure what the future will be like.''

The $10 billion won't be used to buy power, but rather to cover losses California may incur over the next 10 years. The amount of money needed to buy power is greater than the $10 billion authorized, maybe approaching $20 billion over 10 years, experts say.

As they roll out their under-funded, under-modeled energy bailout plan, beleaguered California officials should not look to Washington to help in their hour of need. Energy Secretary Spencer Abraham told a group of western governors at Portland Friday, that the Bush administration, at least for now, is disinclined to step into the energy crisis with government controls.

“I have great concerns about that, and the president has expressed concerns as well,” Abraham explained. “At a time when demand is a very serious challenge for us this summer...anything that puts disincentives in place, that would work against reducing demand, I think has to be looked at very closely.''

In plain English, that means that the Bush administration expects the “magic of the marketplace” to solve California’s energy problems, sure to increase during peak power usage this summer, by raising the cost of electricity to businesses and consumers until it becomes unaffordable to many, and existing supplies can meet newly reduced demand.

It’s a simple, even elegant solution from the Bush administration’s point of view, based upon the contention that the botched deregulation of California’s energy markets can be corrected simply by raising prices to end-users, who have until now been protected from soaring wholesale electricity costs of the past year.

It’s also a politically unacceptable solution – in California if not inside the Beltway. Increasingly restive California consumers expect both state and Federal governments to step in and insure them an electricity market that provides affordable, plentiful electricity – now and throughout the coming long, hot summer.

Angry consumers may ask, what about other Federal agencies? Is the President the only source for relief in all of Washington?

Well, the federal government exercises considerable sway over wholesale electric rates through the Federal Energy Regulatory Agency. FERC can set wholesale interstate rates to make them reasonable and fair. But its members, who are keen supporters of deregulation, have been loathe to intervene.

Consumer group alleges price-fixing

Electric utilities and their out of state energy suppliers are facing a growing barrage of accusations that they have manipulated energy markets to rig prices, and thus triggered the energy crisis, in part, through their own actions.

What’s the evidence for these allegations?

Well first of all, prices are higher this year for electricity in California , but demand has been lower during four of the last six months than during comparable 1999 periods, according to analysis by Public Citizen, the Washington, D.C. based consumer group associated with Ralph Nader. This contradicts the arguments of utility companies and power generators who claim that higher prices are the result of increased demand.

Public Citizen analyzed “hourly load data compiled by the California Independent System Operator (CAISO). CAISO uses this data to find out how much energy must come from various plants to meet California demand and records the highest amounts of demand by hour within the state of California .”

“The data shows that while demand did soar in May, in four out of the past six months -- July, August, October and December - California saw a lower peak demand than during the same months in 1999,” Public Citizen contends.

While power plant producers believe consumers need to pay higher rates to produce the revenue for construction of new power plants “to meet the alleged higher demand. Our analysis reveals their ploy to soak consumers." Public Citizen goes on to say, “With no increase in energy demand, a major contributor to the current crisis is that plants servicing California with 11,000 megawatts of capacity have been taken out of service for a variety of reasons, most undisclosed.”

"Power producers are inappropriately citing increased demand to justify building new plants," states the report, "and they are hoping to speed the process by suspending California's environment-friendly standards."