CALIFORINA
CAPITOLWEEK #537
((Jack))
Thank you
for joining us for our sixth summit on the energy crisis…
Californians
are bracing for the summer, wondering how bad it will get, and if there will be
anything we can do about it…
We’ll ask
some of the major players in just a moment…
((Melissa))
This early
heat wave is an indication of how bad it may get…
Blackouts
are on the way, a minimum of eighty hours worth and more than two hundred by
other counts coming this summer…
The good
news, if you can call it that, is we may have some advanced warning of when
those blackouts will happen…
((Jack))
The state
grid operator, or ISO, says that when a blackout is imminent, thirty minutes
warning will be given…
Legislation
moving through the capitol seeks to stretch that warning to more than thirty
days...
((Melissa))
Frustrated
consumers protested outside the Governor’s office this week, while Davis signed
legislation to speed approval of new plants…
A report
claims that large power companies purposely wore down equipment, leading to a
power shortage, according to the San
Francisco Chronicle…
Begin Sound bite…
((Senator John Burton, Senate
President Pro Tempore))
The
generators have been gaming the system.
They’ve shut down plants in order to have, uh, to lessen the energy
supply, which increases the energy cost.
End Sound bite…
((Melissa))
Power
producers have denied any wrongdoing.
Several state agencies are investigating…
Back to a
different debate though…
In response
to President Bush’s energy plan, which includes boosting energy production and
oil drilling, the Democratic party fired back with a commercial blaming Bush
for not imposing price caps…
((Jack))
So here’s
our energy status report…
State
Controller Kathleen Connell says that the Governor’s estimate of thirteen
billion dollars will not be enough to cover the state’s energy bill. She says at least four billion more dollars
will be needed early next year…
The state’s
independent auditor, Elizabeth Hill, told lawmakers this week that she thinks it’s
unlikely that power needs this summer will be secured.
((Melissa))
Also,
several state lawmakers filed suit against the Federal Energy Regulatory
Commission this week, claiming FERC is not doing it’s job and must set price
caps…
And a new
public policy poll shows that half of California residents believe the state is
headed in the wrong direction…
Approval
ratings for Governor Gray Davis have dropped to forty-six percent, and that’s
down seventeen points since January…
Joining us
now for more on the energy crisis,
State
Treasurer, Phil Angelides; he backed the recently passed legislation setting up
a public power authority…
Republican
Assemblyman, Anthony Pescetti, an Energy Committee member and former Sacramento
Municipal Utility Board member…
((Jack))
Lenny
Goldberg, representing TURN or The Utility Reform Network…
And Gary
Ackerman with the Western Power Trading Forum, an organization of thirty in and
out of state electricity generators…
((Melissa))
We thank
you for joining us, and, Gary, we’ll put you in the hot seat first. There’s been a lot of talk; the dialogue is
stepping up; the attorney general has been talking about possible civil action
against power producers for manipulation.
The latest Chronicle report suggested that the throttles were actually
overused to force unscheduled maintenance.
Your response to that?
((Gary Ackerman, Western Power Trading
Forum))
Well,
somebody who holds a position like attorney general, I think, should file his
claims first and make his public speeches second. We’re basically outraged that he would use his public office to
darken the whole situation, no pun intended.
It is upsetting, obviously, the
people who are considering investing in California, and you have to believe
that ever time they see and hear a charge like that, their people in charge of
assessing the risk of doing business in California turn it up a notch. The way it goes right now, they’re looking
at California like a third world country.
Every time the political leaders start the rhetoric, they’re saying,
“This is looking riskier and riskier.”
((Melissa))
Are these
allegations of manipulation untrue, Gary?
((Gary Ackerman, Western Power
Trading Forum))
We think
that they are absolutely untrue. Of
course, I can’t look into the books of every producer because I don’t have
access to that any more than you or anyone at this table, but the point is, any
suggestion of collusion that is going on by the producers has certainly never
been proven. They certainly never have
described to anybody’s satisfaction how we go about doing that, and I think
that they’re just blatantly false.
((Jack))
In that
case, how do we get to a point where, I think it was May 9th, where
the state of California paid nineteen hundred dollars for a megawatt of electric
when, in December, it was two hundred dollars?
((Lenny Goldberg, The Utility Reform
Network))
See, you
don’t need specific collusion. We don’t
know if they do it or not. You know,
get on the phone and talk to each other and say, “Here’s what we’re doing
today.” They have so many ways of
sending signals to each other, and the primary strategy that’s been being
used—and there have been a variety of strategies to gain the market and drive
prices up—has been the withholding of power.
This started a year ago in May, where there was economic withholding for
reasons of fulfilling contracts, and all of the sudden, the generators looked
around and said, “God, we got this great price spike.” So, there has been consistent withholding of
power from the market. There has been
consistent selling into the “day ahead” market in Nevada and then buying back
on the spot market at greatly inflated prices, which is called “megawatt
laundering.” There are a variety of
techniques that have been used by generators to be able to gain the market, and
the proof of that is that rates don’t go down in the middle of the night when
demands are low; rates didn’t go down in the slow months of the year when power
demands are low, and now, power demands are high, and we’re fortunate we
haven’t had blackouts this last week despite the heat.
((Jack))
Phil
Angelides, you’re the ranking state official at this table right now. Do something.
((Phil Angelides, State Treasurer))
((Jack))
You’re
talking about a buyer’s cartel?
((Phil Angelides, State Treasurer))
Yes.
((Jack))
Okay. In order to make that work, we would have to
have planned blackouts, would we not?
Anthony, how does that sit in your district?
((Assemblyman Anthony Pescetti, [R]
Rancho Cordova))
Well, you
know, I have a lot of municipal utilities that service my district. Both of them have the ability to provide,
either through self-generation or contracts, enough supply to meet the
demand. The biggest problem that I
think we’re facing is still on the supply side. We need to build more power plants so that we become less reliant
on out of state generators of electricity that we could control, in a sense,
how much we’re willing to pay.
((Melissa))
What do you
think about the Bush plan? Did it go
far enough, and will it help California?
((Assemblyman Anthony Pescetti, [R]
Rancho Cordova))
Well, I
think the Bush plan is a first step, and it’s a start. There are a lot of other things that we have
to continue to look at. As the
Treasurer mentioned, California is the sixth largest economy in the world. We have needs and demands here that are very
different from other states in this country, so I think we need to look at it
very differently, but I think we’ve got to provide more supply in place, which
means more generation. We’ve got to
streamline that process. If we can do
that, then the competition will drive the prices. The other part of it is if we have to pay nineteen hundred
dollars a megawatt, and we look at the prices that are being paid, and one of
the reasons that you have the two investor-owned utilities so far upside down
on the under collection has been the willingness to pay that high price. At some point, someone’s going to have to
say, “You know what? We’re not going to
pay that price anymore.”
((Gary Ackerman, Western Power
Trading Forum))
You know,
it’s interesting because the policy of the Department of Water Resources is to
have a target price. All the traders
out there know that. Everyday, they set
a price. They don’t tell us what it is,
but we have to figure it out by doing trades with them. Isn’t it interesting though that—
((Jack))
So, as
you’re trading, you can kind of figure where the break even point is?
((Gary Ackerman, Western Power Trading
Forum))
You can
guess. You can guess. You have no idea, and it’ll move.
((Jack))
So, you bid
high and no one takes it, so you bid a little bit lower—
((Gary Ackerman, Western Power
Trading Forum))
No, typically
it works the other way around oddly enough. I can’t explain it, but it does.
It goes lower, and people say, “Well, if you took it at that price,
maybe I’ll try to get it at a higher price.”
((Jack))
The reason
I bring that up is because there’s so much discussion about gaming the market,
but isn’t that part of the process?
((Gary Ackerman, Western Power
Trading Forum))
That’s how
markets work. People who don’t
understand markets call it gaming, but—
((Lenny Goldberg, The Utility Reform
Network))
—
((Gary Ackerman, Western Power
Trading Forum))
Now, wait a
minute. I just want to make one point,
and then I’ll go to you Len, if I could.
You’ll find, and I think it’s surprising to some people, that we agree
that we should hold tight to those limits.
Those aren’t bad things; those are good things. What we say is anything to reduce demand or
increase supply are equally good, and we want to see both.
((Melissa))
Lenny, go
ahead and respond to that.
((Lenny Goldberg, Western Power
Trading Forum))
I-I think
we’ve learned, and I’ve come to this reluctantly, in electricity where you have
an inelastic demand for a basic necessity of life, that the market—you know, it
may be gaming; it may not be gaming, but when you have to call on somebody on
demand at a very certain time to keep the grid operating, the market just is a
failure. Deregulation was pronounced a
failure by Governor Davis, and now we still look like we want to revive the
market. Deregulation is a failure when
you have this short supply, and if you can’t have short supply in a market, you
don’t have a market working. We should
have gone from three cents maybe to six cents and then maybe to nine cents, and
then more power will come online. We
went from three cents to thirty cents.
The market is not going to work, and we’ve got to come up with some
other institutions. Treasurer Angelides
has pointed us in that direction with the State Power Authority, and we’ve
still got a lot of change to get in there and make sure that Californians are
never subject to this kind of craziness ever again.
((Phil Angelides, State Treasurer))
Let me pick
up on something that Anthony talked about for a minute. I do think that Californians need to
remember that we do fundamentally have a supply and demand problem that has put
us at the mercy—I know Gary won’t like this—of a cartel of a very small number
of out-of-state companies, so we as Californians have work to do. You know, we can’t always just point the
finger. I think that we do need to build
new generation; I agree with Anthony, and we need to do the best job in the
world of conserving so that we have a balanced energy infrastructure in the
years ahead, but we also need to make sure that we can survive the summer,
which is why it’s important, whether there is gaming or not, that we get
control over these generator prices.
The truth is, we don’t truly have a competitive market today. A truly competitive market is if you have a
thousand generators competing against each other, knocking each other for
prices. That’s not happening. Prices have gone to record levels, which is
why we need to control them through the summer, either by putting limits on our
buying or the federal government doing so, and for the long-term, let us always
remember that the history of the twentieth century was that you needed to have
some public interest regulation of electricity to protect the public
interest. It’s never been, because it’s
a necessity of life, a truly competitive market. We’d be smart to put in things like the power authority and other
regulatory mechanisms in years ahead to protect the public.
((Gary Ackerman, Western Power
Trading Forum))
You know,
it interests me when people say the market isn’t working. Two weekends ago, the wholesale price of electricity
dropped down below seven dollars a megawatt hour. We had additional supplies from the Northwest that weren’t
anticipated, and everybody ended up long.
That’s a market that’s working to me.
It’s moving up and down as the supply and demand also move up and
down. Now, Lenny might have some points
here that, in an extreme shortage, we might want to ask the question, “Do we
want a market in this situation or not?”
The way the federal regulators have looked at in their recent order is
to say, “No, we don’t have quite a market in the tightest supply
situations. We have to mitigate the
price,” and they’re doing that.
((Phil Angelides, State Treasurer))
Well, now,
let me say it’s a very diminomous effort.
They are regulating prices with a set of loopholes you could drive a
truck through—
((Gary Ackerman, Western Power
Trading Forum))
Okay, but
let’s agree on—
((Phil Angelides, State Treasurer))
Gary, let
me say that—
((Gary Ackerman, Western Power
Trading Forum))
We don’t agree on
the magnitude, but there’s something there.
((Phil Angelides, State Treasurer))
But, you
know, the fact is there is a long history in the twentieth century of when
markets go upside down, we’re smart as Americans, and we figure out ways to
make the markets stable. You know,
after the Depression, when the banking system collapsed, we didn’t just say,
“Well, that’s how the private market works.”
We said, “Banks are very important to this country,” so we created the
FDIC, a system of regulation to make sure that we had stable banks. In the mortgage markets, we say that home
ownership is so important that we’re not just going to let the mortgage markets
be robust one day and disappear the next.
We have Fanny May, Freddie Mack, FHA, VA, Jenny May, a whole set of
mechanisms to make sure that Americans have access to stable capital for
mortgages. Electricity is as vital as
anything, and we do need a measure of public regulation to make sure our—
(Hubbub)
Gary’s
agreeing.
((Gary Ackerman, Western Power
Trading Forum))
I’m agreeing.
((Lenny Goldberg, The Utility Reform
Network))
The very
point that prices go up once, and then they go down again. We don’t get real time signals. It’s not like you go into a grocery store
and say, “Hey, the price of bread’s gone up, so we’re going to buy pasta.” You know, it is a situation where you don’t
know what the price is day to day. You
just get a bill. There is not the
ability to react in real time, and we—this economy, the businesses, and
consumers can not afford tremendously volatile prices. That’s what—
(Hubbub)
That’s what
happened in San Diego a summer ago, and everybody went crazy.
((Phil Angelides, State Treasurer))
Jack, I
know you’re the host, but I do want to say one thing, and this is
important. One thing that’s happened since
January is that, unfortunately, business leaders, utility activists,
Republicans, and Democrats in California have all been fighting about how to
survive versus figuring out together how we can survive. I just want to say this about Anthony
Pescetti: He was the lone Republican to cast a vote for the bond measure, which
will allow the state to purchase energy, keep the lights on, and prevent rate
increases, which would be two hundred percent plus. Instead, unfortunately, we’ll still have rate increases of forty
percent, and I think we need to do more of us working together than pointing
fingers at—
((Melissa))
Why is that
important, Assemblyman—
((Jack))
Anthony,
let me visit it that way. It’s a
fifteen billion dollar bond issue.
What’s the interest on that?
((Assemblyman Anthony Pescetti, [R]
Rancho Cordova))
We’d have
to ask our treasurer what the interest is?
((Jack))
And the new
interest because the bond ratings have dropped, have they not?
((Phil Angelides, State Treasurer))
Well, I
think we’ll be able to this bond at about six percent overall. That’s my sense.
((Jack))
What’s the
math? What’s the dollars?
((Phil Angelides, State Treasurer))
Oh, umh,
probably, umh, you know, I don’t have my calculator with me right now, but I’m
going to say on a ten billion dollar bond, I would say you’re looking at about—
((Jack))
Six hundred
million dollars?
((Phil Angelides, State Treasurer))
Well, you
know, over the life of the bond, you’re probably looking at about three to four
billion dollars interest, but, you know, that’s over time, Jack.
((Jack))
You know,
that’s a substantial amount of money.
Now, we’ve also had reports that the thirteen billion dollars is not
going to be enough.
((Phil Angelides, State Treasurer))
It depends
on how much the generators charge.
((Jack))
It depends
on how much the generators charge. See,
we’ve got three billion dollars in interest, which could balloon into four or
five billion dollars of interest. This
is all getting tacked onto my tax bill, isn’t it?
((Assemblyman Anthony Pescetti, [R]
Rancho Cordova))
Well, no,
it will be tacked onto your rates, if—
((Jack))
Oh, so if
I’m not paying it as a taxpayer, it’s coming in as my utility rate?
((Assemblyman Anthony Pescetti, [R]
Rancho Cordova))
That’s a
very important factor. When I looked at
the bond issue, it really came down to “Do we take the money out of the general
fund, which is what we have been doing, and have tax dollars going towards the
purchase of electricity, or do we have revenue bonds go towards the purchase of
electricity?” I felt that, one, revenue
bonds are stretched out over a longer period of time. Two, it allows the ability to get into some long-term contracts
that get some stability in the price.
It may not be the best price, but if you’re paying 6.9 cents, it’s
better than thirty cents a kilowatt hour, so it provides some stability, and,
third, it provides some protection for the consumer, so that they’re not
getting hit with a high flux of rate increases.
((Jack))
But are we
going to be paying—let’s assume that the Public Power Authority kicks in, and
generation improves in California. Are
we going to be paying these extremely high rates, then, extended over fifteen
to twenty years? Are we locked into the
top of the market?
((Assemblyman Anthony Pescetti, [R]
Rancho Cordova))
You know, I
don’t think we are because the demand for electricity continues to move. There’s an influx. It protects the state. It
protects my constituents. I have a
large number of municipal utility constituents. I am a municipal utility customer. It protects us because it means that my rates are going to
protect us if SMUD decides they want to buy the electricity. It doesn’t help me to have my tax dollars go
towards it, but I think the bond, in the long run, is an insurance, and I don’t
think that it’s a hundred percent of the supply that we need. We’re purchasing thirty-three percent, or
about a third, is purchased on the spot market. The goal is to get that number down. Get a little more into long-term contracts, and have a little
more reliability that will protect the ratepayer, and it will allow for more
construction of generation as the plants become older, as the supply is
needed. It brings a balance.
((Melissa))
Let’s talk
about supply for a minute because, long-term, that’s going to be the consumer’s
friend. What are we doing to get more
supply. We’ve heard about the Governor
trying to speed legislation. The
Republicans have a plan as well. How
does that differ, and how much more supply do you feel, Anthony, the Republican
plan will bring online versus the Democrat’s plan?
((Assemblyman Anthony Pescetti, [R]
Rancho Cordova))
You know,
first of all, I think Gary and I think all of us agree that not only is it
supply. It’s conservation. You have to have a blend of both of
those. The Governor signed a bill a
couple of days ago in Elk Grove, SB-28X, which allows for the streamlining of
the process, not only to build some additional power plants, but it also allows
for the retrofit of some of the older facilities. That’s the first step to try to insure the supply—
((Melissa))
And, today,
we hear some diesel might be part of the picture as well.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Yesterday
or within the last few days, the Governor has announced that he’s going to look
at diesel, especially in a stage three when we need to make sure that we have
the system in place, but what we’ve got to look at if we’re truly committed to
getting more supply into place, we’ve got to look at, at least for a couple to
three years, we’ve got to look at supply as a major priority. Find ways to streamline the process through
the Energy Commission to get these power plants into place. A lot of these power plants being built
today are environmentally cleaner than the thirty to forty year old power
plants. We’ve got to find ways to
streamline to get more power plants online.
We have to find ways to improve the quality, not only environmentally,
but the efficiency of some of the older power plants that this bill starts, but
we have to do a lot more.
((Jack))
Can we talk
about rates just a little bit here?
((Phil
Angelides, State Treasurer))
Just one
more comment about—
((Jack))
Is there
any indication that the rate increase that we’re going to see in our June bills
is the last?
((Phil
Angelides, State Treasurer))
Well, let
me just say, Jack, that I think it all comes back to the central issue of the
generators are getting historically high prices now. I mean, you could say, and I know Gary’s not going to like this
terminology, but “obscene pricing” that’s really not a reflection of the
private market. If the bond rate moves
forward with the current rates today, and the generators hold their prices, we
can limp through this summer.
((Jack))
If they
don’t—
((Phil
Angelides, State Treasurer))
Well, let
me give you a sense. If the generator
prices, which have already gone up ten times, go up another fifty percent at
peak times this summer, you could be looking at the need for triple digit rate
increases, so this
(Hubbub)
It really
comes down to controlling generator prices through the summer as we get new
supply online and as we conserve more.
((Lenny
Goldberg, The Utility Reform Network))
There’s
another issue with regard to rates, and how much, and who is going to pay for
what I would call the bailout of the utility situation? The current rates are barely able to pay for
the extortionist prices that we’re paying for electricity. Now, the Governor and Edison have
unfortunately come to an agreement that the legislature, hopefully, will reject
that is going to tack on, you know, a significant rate increase on that. We don’t know what the conclusion of
PG&E’s bankruptcy case will be, but they’re going to come into the
bankruptcy judge—I don’t know this, but I am virtually certain—saying, “We want
to get bailed out with rate increases.”
So, the question is, do the rates pay for the extortionist prices, and,
on top of that, will they—
(Everyone
chimes in simultaneously)
We’re going
to fight that. I can tell you that.
((Melissa))
Hold that
thought.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
I think
this is something you may want to feed off of.
The Governor has entered into some long-term contracts, some we’ve seen
that start July 1st. We
don’t know the details of those contracts other than we know the price is a
range of between sixty-five dollars a megawatt to seventy dollars a
megawatt. We haven’t seen—at least, I
don’t know how much power is going to be purchased. The question I have, and it’s in regard to Jack’s question, it’s
my understanding that one of the things the bond does is it takes into
consideration these long-term contracts that the administration has entered
into. That will help us because we are
now reducing the amount of spot market or short-term power that we buy down
from thirty percent to the neighborhood of ten percent, so that should
help. Now, if that is the case, doesn’t
that help us on the spot market with the prices?
((Gary
Ackerman, Western Power Trading Forum))
Certainly
that helps, but this state suffers from a disease called “Helpless Buyer
Syndrome.” “We have to buy it at any
price that the market is dictating.”
That market price is a signal, and what it says is, “If you don’t want
it at that price, please, don’t buy it.
There must be other buyers.”
Now, if there’s a buyer’s cartel, and I’m not necessarily against a
buyer’s cartel—I mean, try it. Could it
hurt us? No.
((Jack))
I think
this is a good place to—
((Melissa))
Thank
you. We want to keep in perspective the
amount of money that is being spent
today to keep our lights on. The state
is spending, on average, seventy-three million dollars a day to keep the lights
on.
And to help
get a feel for that, here’s what our staff found out you could buy for that
same price:
The city of
Sacramento says that they could hire more than one thousand four hundred police
officers at an average yearly salary of fifty thousand dollars.
((Jack))
In one day.
((Melissa))
In one day.
The
Department of Education says that at least two schools could be
constructed. Here’s the price tag: a
new high school at fifty-two million dollars, and a new middle school at
twenty-two million dollars.
If you want
a new car, according to an area Honda dealership, you could buy more that
fifty-two hundred Civics at about thirteen thousand dollars a piece, and, Jack,
that’s in one day.
((Jack))
In one
day. Phil?
((Phil
Angelides, State Treasurer))
I am now
completely speechless (laughs). Well,
except, it puts in perspective the following: historic high prices. It also puts in perspective the need for all
of us to conserve, and it puts in perspective, I think, the necessity for
making sure that we stop using general fund money, which Anthony Pescetti
deserves credit for by supporting the bond, that we stop using money intended
for education, healthcare, and children’s services for energy purchases.
((Melissa))
And I don’t
want us to get off the hook here before we talk about scheduled blackouts
because, is that the only good news that we’re offering consumers? Is that a good thing? Can that really happen? How can you schedule a blackout thirty days
in advance?
((Lenny
Goldberg, The Utility Reform Network))
Well, you
can’t schedule a blackout thirty days in advance, but I think that everyone has
said, whether it’s business consumers or ordinary consumers, has said, “Give us
some warning time. Let us know in
advance. Let’s spread not only the pain,
but the anticipation.” If I get into an
elevator, and I know my area is not scheduled for a blackout, I’m all
right. I’ll just take the stairs, and,
I think issue of a buyer’s cartel and taking some economic power and the
scheduled blackouts go together because—
((Jack))
I want to
get one last thing to Gary. There’s a
story today, and we’re taping this program Thursday morning, in this morning’s Oakland
Tribune that talks about the Attorney General seeking civil charges and
perhaps even criminal charges against generators.
((Gary
Ackerman, Western Power Trading Forum))
Yes, well,
that’s going to have a very bad outcome for California. The bonds that Phil is
putting together for this state are going to feel the impact of those kinds of
charges, whether they’re carried out or not.
Even the discussion of it, what does that do to help us bring more
supply this summer or reduce the amount of demand? We’re outraged by these comments, but, hey, if that’s what the
public wants, and if some people that want to be Governor some day think that’s
a way to get attention, well, that’s a sad story, but that’s the one we’re
going to tell.
((Melissa))
On that
note, we are out of time. We want to
thank all our guests for joining us today.
((Jack))
And we will
see you next time. Thank you.
((Melissa))
Good night.