Gray Davis, Governor of California, declared a state of emergency on 17 January in response to a power crisis that seemed to be spiralling out of control. Declaration of emergency status gives the state government the authority, and access to the resources, to keep electricity supplies flowing. Davis intended to direct the legislature to pass emergency measures allowing the appropriation of the general funds necessary to keep power supplies switched on for another week to ten days.
The governor was finally driven to issuing the emergency directive when for the first time ever, on Wednesday 17, California’s power regulators ordered large scale rolling blackouts, unplugging around 200 000 customers for between one and two hours. It was the likelihood of more blackouts the following day that finally precipitated the governor’s action.
In the event, blackouts later in the day were averted when 1300 MW was bought in from an unnamed Canadian utility, and topped up with supplies from the Los Angeles Department of Water and Power. But a worsening situation was predicted. The state’s largest two utilities, Southern California Edison and Pacific Gas and Electric Co, had exhausted their credit and were no longer able to find suppliers willing to sell them power, resulting in a likely shortfall of 18,000 MW or more. The prospect for the immediate future was a day by day, maybe hour by hour, scramble for power supplies.
Both utilities have recently defaulted on debts – SCE on $596 million of payments to bondholders and other creditors, PGEC on short term debt (“commercial paper”) – and faced the prospect of declaring bankruptcy. Slight relief came when a federal court decided that SCE has the right to recover from its customers “reasonable costs” incurred purchasing power during the statewide energy supply crisis, at least until a trial has been held to determine if SCE’s purchases have been prudent. The ruling resulted from a court action taken by SCE against the state Public Utilities Commission.
At the same time the California legislature is debating a bill that will allow the state to trade in electricity directly, without the utilities.
Long term solutions however cannot be so easily found. Although the slide into an emergency has been precipitous – even in early January utilities were merely telling their customers to expect larger fuel bills to pay for demand brought on by the cold weather and higher gas prices – the state’s energy troubles have been building for some time, with insufficient new power plants being built in the last 10 years to keep up with the power needs of a rapidly expanding population (now 34 million) and a strong, electricity thirsty economy.
Some disenchantment with the results of unregulated power production combined with market led financial policies seems to be creeping into American politics. Oregan governor John Kitzhaber and Washington governor Gary Locke have called for voluntary 10 per cent cuts in energy usage – roughly the demand of the city of Seattle – to cut back the profits being made by traders of wholesale power. “The money flowing out of our economy into the pockets of private power plant operators – perhaps $1.5 billion a month in the Pacific Northwest – could ruin the prosperity of the region” said governor Locke. “When we reduce the demand we reduce the need of our utilities the buy the power at these outrageous, exhorbitant, extortionist prices”, he added.
Meanwhile, California’s troubles were impacting on consumers in British Columbia, Canada. BC Hydro, the province’s publically owned utility, is thought to be owed millions of dollars for electricity it sold last year to the two Californian utilities (S Cal Edison and PGEC) now being driven very close to bankruptcy. The company has already suspended sales of spot-market electricity to California’s Independent System Operator because of concerns over credit, although it is still supplying under long term contracts and is thought to be selling power on an emergency basis through the state’s Water Resources Department. But it’s own domestic consumers may suffer by the suspension or cutting back of plans to help low income residents pay their energy bills. British Columbia Premier Ujjal Dosanjh had been relying on profits from power sales to California to help finance the rebates, but in the light of the debt situation and the uncertainty of sales to the beleaguered state now considers it “fiscally prudent” to hold back on such plans until the financial impact of the California situation has become more clear.
l At the time of going to press it was announced in Washington that US Energy Secretary Spencer Abraham had extended through to February 6 two emergency orders requiring energy companies to sell surplus electrictiy and natural gas to California’s utilities. Because SCE and PGEC have been brought close to bankruptcy by the crisis, some out-of-state suppliers have been reluctant to sell them power because of fears they would not be paid. This order forces them to carry on doing business with the California utilities.
