Fighting (And Winning) The Energy War
By Dave Rosenberg Yolo County Supervisor, 4th District
This is war. Make no mistake about it. The mighty California economy, California businesses and consumers, are being bludgeoned and battered by energy generators and marketers ? most of them from out of State and many of them from Texas ? who are charging exorbitant prices for their electricity. How exorbitant? Last year, California was paying $30 per megawatt hour for electricity. Our demand for power hasn?t really gone up, but this year we are being charged $1,900 per megawatt hour. As a result, the California PUC has had to substantially raise rates; power costs more now and ratepayers will have to pay the bill. But California is fighting back. And, in the long run, we will win this fight.
But before we focus on how California is fighting back and how it will win this fight, let?s spend a moment understanding how we got in this fight to begin with. The fundamental problem does not take a rocket scientist to understand. California?s problem is that we don?t have enough supply to meet our demand. This imbalance grew directly out of a fatally flawed deregulation scheme foisted upon us by a PUC appointed by Governor Pete Wilson, readily put in place by a unanimous Legislature, and signed into law with glowing predictions by that same Governor Wilson in 1996. Interestingly, Governor Wilson was recently quoted in the press as saying that he knew, as the time that he signed deregulation into law, that it was a flawed plan. Don?t you wish he would have said something about that before the signing ceremony?
Under California?s 1996 deregulation scheme, utilities sold their power plants and were barred from signing long-term power contracts. This put their plants into the hands of out-of-state interests, and also forced the utilities to buy power on the volatile spot market while the prices that they could charge retail customers were capped. At the same time, the law surrendered the control of wholesale prices to the Federal Energy Regulatory Commission (FERC).
So what happened? The electricity emergency that California is facing today results from the imbalance between supply and demand. In that breach, merchant generators have taken ruthless advantage of that imbalance and the flaws in the deregulation scheme. The one and only entity that is permitted in law to control wholesale prices ? FERC ? has refused to do so.
This past winter, the prices charged by the generators shot through the roof. In January, with FERC still refusing to control runaway wholesale prices, the State had to step in to purchase power the utilities could not longer buy. This wasn?t done to save the utilities. It was done to keep the power on. If the State had not stepped in to buy the power, the lights would have gone off throughout California for a long, long time.
So, how can we fight back?
Clearly, the long-term solution is to build more power plants and get more supply on line. Until we can correct the imbalance between supply and demand, we will continue to be at the mercy of the generators and price manipulators. Remarkably, however, for the 12 years prior to Governor Gray Davis assuming office in 1999, California did not build a single major power plant. That is, in my mind, a revealing yet unfortunate statistic. For those 12 years, California State Government was asleep at the switch.
To be fair, it?s not possible for Governor Davis to fix 12 years of inaction overnight. But great progress is being made cutting red tape and offering cash incentives to speed up construction of power plants. In fact, within three months of being sworn into office, Governor Davis? Energy Commission licensed a major power plant for construction. In the two years since that first license a total of 15 new major power plants have been licensed in California. Another dozen are in the pipeline. Of the 15 that have already been licensed under Governor Davis? watch, 10 are currently under construction and four will be up and running this summer! California is building new plants without weakening the state?s commitment to clean air and clean water. By 2003, California will actually have a 15% surplus of power (not the 20% deficit under which we currently labor). And then, truly, California will be in the energy driver?s seat.
But the immediate challenge is getting from now, till 2003.
California is fighting this war on many fronts. First, the California Department of Water Resources (DWR) has negotiated long-term contracts for electricity at vastly lower prices than the daily market for power. DWR has already contracted for more than 600 million megawatts of power at an average price of 6.9 cents per kilowatt hour.
Second, we have ratcheted up the effort to get "peaker plants" on line this summer. Currently, 6 such "peakers" are ready for the summer months. These peakers are small energy sources that will kick-in only during peak hours when we need them. They will give us an edge.
Third, the Davis Administration has been moving actively to stabilize the existing utilities so that they can get back in the power business. The State should only be in the power business as a last resort. But the State should never again be left as helpless prey to the generators who want to gouge us. That?s why a power authority bill was passed by the Legislature and signed into law by the Governor. This bill creates the California Power Authority that can, if necessary, issue bonds and construct, own and operate electric generation and power facilities, and finance energy conservation programs.
Fourth, funding has been provided by the Legislature and approved by the Governor so that the Attorney General can actively and thoroughly investigate and prosecute price manipulation and anti-trust activity where he finds it. The gougers will be brought to the bar of justice.
Fifth, Governor Davis signed into a law a bond-sale bill to reimburse the California treasury for electricity purchases. The bill allows the state to sell a $13.4 billion revenue bond package to finance the cost of its past and future energy purchases.
Sixth, the Governor proposed and signed into law a $850 million conservation program, perhaps the most comprehensive and extensive conservation program in the history of the planet. For those Washington D.C. politicians who constantly make snide references to Californians wasting energy while sipping white wine in hot tubs, we can truthfully say "nonsense." Recent statistics show that California is, in fact, Number One among the 50 states in energy conservation. Our per capita energy usage is the lowest in the nation. And we will do even better this summer. The emphasis on conservation is absolutely critical. Conservation is how each Californian can fight back. As the Governor has said: "We are 34 million strong. While we have a power shortage, we are far from powerless." If all of us turn up our thermostats this summer and use less air conditioning, use major appliances (like clothes dryers) rarely and not during peak demand hours (noon till 7 p.m. are typical peak demand hours), turn off lights and use less wattage in our light bulbs, we can not only save money but we can also send a message to those that would gouge us with high prices. No more. We?re fighting back.
In short, California is moving on every possible front (new generation of power, stabilization of the system, and conservation) to overcome the energy crisis. Yet there is one thing that California cannot do and cannot control. And that?s the wholesale price of electricity. Only the Bush Administration and its FERC can do that. Yet they refuse. Ironically, last year FERC determined that the California energy market is dysfunctional, yet FERC refuses to cap wholesale prices. No one is saying that energy suppliers shouldn?t receive a profit on their product. But a profit of 500%? 1000%? That?s just not right.
We?re not talking about golf clubs, or television sets, or eggs, or even bread. We?re talking about electricity; a product that we must have for our homes, our offices, our businesses, and our government. FERC and the Bush Administration have proposed an "Energy Plan" that may drill in the Arctic and may result in more nuclear power plants being built, but effectively, does nothing to help California through 2003. It?s as if they simply have turned their backs on the 10% of this nation represented by the State of California. That?s a mistake because California is the economic engine that drives this country. And that?s a mistake that Californians won?t soon forget.
If we have to go it alone, so be it. As the philosopher Nietsche once said: "That which does not kill you shall make you stronger." And we will be stronger.