CALIFORNIA CAPITOLWEEK #541
6/22/01
((Jack))
Thank you
for joining us.
So, has the
state turned an important corner in the power crisis as Governor Davis has
suggested recently? We’ll find out from
our guests in just a moment.
((Melissa))
Jack,
meantime, conservation is urged with triple digit temperatures upon us as well
at blackout threats, and we’ll share what’s being done to address summer supply
and energy concerns.
First, a
look at where we stand today:
This week,
federal regulators unanimously approved price limits on power in the West. Effective through September 2002,
twenty-four hours a day, and not just in power emergencies.
((Jack))
Governor
Davis announced an agreement with San Diego Gas and Electric’s parent company,
Sempra Energy, to erase 747 million dollars in debt.
The plan
proposes having the state purchase utility lines at 2.3 times their book value.
Davis also
testified this week in Washington before a Senate Committee on the state’s
energy situation, now chaired by Democrat Joseph Lieberman.
The energy
situation has also affected budget plans.
Debate continues over which portion to trim so state reserve funds can
be increased.
Joining us
today:
Energy
Committee member and former SMUD board Member, Republican Assemblyman Anthony
Pescetti,
Democrat
Assemblyman Joe Canciamilla, who is also heading an investigation into rising
natural gas prices,
((Melissa))
Also,
Michael Shames with the Utility Consumers Action Network,
And Susan
Bakker with the California Energy Commission.
Thank you
all for joining us, and we’ll start with you Assemblyman Pescetti. Price caps from FERC, it seems like what
Governor Davis wanted. Is this all good
news to celebrate? In effect, what are
we actually getting here?
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
You know,
it’s a start. I think it’s good news in
that we now know twenty-four hours a day, seven days a week, there will be some
limits on the prices that the generators can charge, which will help reduce or
not increase the debt that the state and the utilities will encumber. It’s not going to have any short-term impact
on customers’ bills, but it’s a first step and it’s a plus.
((Melissa))
It’s only
the spot market we should mention, which is only about twenty percent of the energy
that the state is buying?
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Right. Well, up until the Governor’s contracts, it
was between twenty and twenty-five percent of the spot market, which is what’s
being purchased.
((Jack))
So, let me ask
you, why has the spot market collapsed in the past couple of weeks or so?
It’s like,
at one point we were spending almost four thousand dollars a megawatt hour for
this spot market price, and now it’s dropped dramatically. What happened?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Well, I
think there are a number reasons. I
think the market stabilized a bit; we seen the conservation kick in; the
contracts that have been negotiated, some of them, are coming into effect, and
natural gas prices have just been dropping dramatically. They’re down below seven dollars.
((Jack))
What caused
that to happen?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Well, that
could be the subject of a fairly extended debate. Part of it is we’re in the summer, so gas demand for heating has
gone down. There’s not a lot going into
storage at the moment, and I think, frankly, in the discussion about where we
are with the gas issues has also affected price.
((Melissa))
So,
Michael, is it time to celebrate? We
have soft caps; although the Governor says they’re not quite enough from
FERC. Does this mean that as a consumer
I should be excited, the crisis is over, my bills are going down?
((Michael
Shames, Utility Consumers Action Network))
Yeah, the
crisis is over, the witch is dead, “Yay!”
Not. No, we’re certainly not
through with the crisis so to speak, and, frankly, if conservation does wane
and if people don’t conserve this summer, we will see blackouts, so we’re not
past the really tough part. The good
part from the FERC order is, I think, that there is a cap on how bad our
exposure is. The amount of money that
was flowing out of the state at, literally, billions of dollars a month will
now slow down, and that’s probably the best part of the FERC order.
((Melissa))
And, Susan,
some people were concerned that any caps would discourage building new plants
and getting more supply online. You’ve
been involved in trying to speed up some of the approval and watch other plants
come online. How do you think the caps
will affect what we need immediately for our energy?
((Susan
Bakker, California Energy Commission))
Well, first
of all, there have been caps on electricity for a good number of the months
that we’ve been in restructuring, and those didn’t seem to affect investors’
interest in building new power plants.
The problem that we have is that it takes a long time to build a power
plant, and so while investors might have indicated that they would like to
build power plants, it takes a while to get them certified, and a while to get
them constructed, and the first ones that we’ll be seeing as a result of
investors’ interest in this market will come on in July of this year. Unfortunately, there will only be a couple
of plants that will be able to come online—big plants that will be able to come
online in the summer. We will have some
peaking plants, smaller plants, coming online this summer too, but most of our
big plants won’t come on for—
((Jack))
You know,
viewers look at this issue, and they say, “Well, if shortage is an issue, let’s
just build some more power plants,” but let me bring up two areas where there
is a dispute over that. Baldwin Hills
in Los Angeles and San Jose where there were proposed power plants. There was a big fight in San Jose, though
the plant was apparently approved, and The Los Angeles Times has an
editorial today saying, “Don’t build the plant in Baldwin Hills,” so, what do
we do here?
((Susan
Bakker, California Energy Commission))
Well,
that’s an extremely difficult question for our commissioners to worry about
because there are eleven thousand megawatts of power plants that we’ve approved
already, and about seven thousand of them are under construction already, and
so the question is, “Do we have to certify every power plant that comes before
the commission?” And one of the tough
questions that the commission has to ask is, “Is this public opposition
something we need to accommodate in a particular case?”
((Jack))
Well, is
that a fair question then, Michael?
Should the people in Baldwin Hills say, “No, not in my backyard,” and by
doing so maybe trigger a situation where we have rolling blackouts again? I mean, do we all have to bite the bullet on
this, or do we want to have our own backyard free of power plants? How do we deal with that?
((Michael
Shames, Utility Consumers Action Network))
Yeah, the
bottom line for me is that there are good places to have power plants, and
there are bad places to have power plants, and there may be, with Baldwin Hills
specifically, that’s not a good place for a large power plant. Now, the other thing to keep in mind is that
these power plants are different from the ones that we’re used to that we built
in the fifties and sixties. They’re
much smaller, modular, and many of them you can’t even tell that they are power
plants, and so I think the neighbors need to begin to appreciate that the power
plants that are being built aren’t necessarily the old, humongous behemoths
that they are used to seeing in the old days.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Just as a
follow-up, one of the other things that we have to look at is as we look at the
transmission system in the state of California, which is in dire need
maintenance and repairs. When you build
power plants in “good areas” as Michael calls them, that helps in taking
pressure off of the transmission system because you don’t have to move it as
far as if you built the power plant in a desert and you want it in Sacramento
County. You don’t have to move it six
hundred miles. That helps because that
provides reliability. It provides more
electricity, or electrons as some people call it, to the system, and it leaves
it in the community, so in a lot of cases, Michael is one hundred percent
correct; these power plants don’t even look like power plants. You can look at the project in San
Jose. It looked like an office
building, and so part of the problem is in this NIMBY approach, “Not In My
BackYard,” but if we’re going to seriously look at this, there are some good
locations that could be located, and the state energy commission has worked
hard in working with local jurisdictions, and it’s important.
((Melissa))
Joe, one of
the things you’ve been keeping an eye on as we look at more plants coming
online—because you’ve keyed into natural gas spikes and why it costs three
times as much when it crosses the Southern California border—is that a concern
as we look at these new plants? So many
of them require natural gas, so could it be a Catch-22?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Well,
virtually all the plants that are coming online now are natural gas fired, and
the vast majority of the cost that goes into these plant, because they’re
really not staff intensive, is gas, but I just want to follow up a little bit
on what Anthony was saying about the citing of the plants. You know, we’re dealing here with the
symptoms of the problem. We haven’t
gotten to the real fix yet, and unfortunately, though saying this may not be
popular as a Democrat, we’re sending all these mixed messages out there. We’re saying, “Come to California and build
power plants,” but we want to talk about capping prices, we want to talk about
a windfall profits tax; we want to talk about throwing you in jail if we think
you’re gouging us; we want to talk about penalties if we think you’re dealing
unfairly with the market, and one of the plants that was just recently
permitted in my area, the Mirant plant—they have a large expansion that was
just permitted, and they’ve said, “Wait a minute. We’re not sure we want to do business in California. We’re not going to build right now.”
((Melissa))
So what is
the fix? What do we do, or what should
we be doing?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Well, I
think as part of it we need to decide what the policy of the state is
ultimately going to be. Are we going to
try and manage this with a stick, or are we going to try and manage it by
attracting business with some economic carrots? We haven’t gotten that far yet.
((Melissa))
Michael, a
lot of people aren’t losing a lot of tears when we talk about the profits that
power producers have made, so on the one hand, consumers want to feel as though
they’re protected. On the other hand,
as Joe mentioned, you have to create an environment where you can get more supply. Are consumers losing out?
((Michael
Shames, Utility Consumers Action Network))
No, I don’t
think so. I think, frankly, the
solution is going to be a stick and a carrot.
I think that there are a lot of companies that have shamelessly
exploited this market, and they need to have a stick shaken at them and maybe
even be hit over the head—
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
But they’re
not just companies. We’re talking about
the Department of Water and Power in Los Angeles. We’re talking about BC Hydro; that’s the Canadian
government. We’re talking about other
facilities that are owned by local entities.
It isn’t just the folks from Texas that have been taking advantage of
us.
((Melissa))
But how does that
stick and carrot affect my bill? That’s
the bottom line that Jack and I always get back to. How do all these solutions that we’re talking about affect the
bottom line of what consumers will be paying this summer and the next few
months?
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Well, it
deals with two areas. Not only what
impacts your bill, but whether or not you hit that light switch, that light’s
going to come on. You have to look at
it in both regards. You know, there are
generators, and I don’t think there is anyone at this table that would
disagree, that have charged exorbitant prices.
Some of them are governmental or quasi-governmental entities. Some of them are private industry. If you’re going to take the stick, then the
stick’s got to be fairly distributed amongst everyone. You just can’t pick and choose which
industry or which entity you want to attack.
The carrot also has to be offered to everyone, and as we look at our
generation capacity in this state—the Energy Commission did a report in, I
think it was 1998, saying that we have a need.
We have power plants that are thirty-plus years of age on average. They’re not efficient. They require more natural gas. They’re environmentally unclean; they’re
dirty. As you look at new technologies
and new ways to replace those facilities, the hope is that you can get that
price down so that it impacts the consumer, and, probably most importantly of
all, when we hit that light switch, we’re assured the lights are going to be
on, so it’s a double issue that we’re talking about.
((Michael
Shames, Utility Consumers Action Network))
Let me
touch on a very important point if I could interject here. One point that I was hoping Joe would go to
and he didn’t was our increasing dependence on natural gas. Frankly, I’m fearful that we are becoming a
state that is so dependent on natural gas that that market, which has already
proven itself to be easily manipulated, could easily be manipulated down the
road. So, frankly, we need to be
talking about different types of energy fuels that will be powering generation
and, beyond that, about distributed generation. Moving away from this paradigm about big power plants, you know,
and moving towards people producing and distributing their own power.
((Jack))
Well, that
brings up the very interesting issue of the long-term contracts that the state
has entered into for about, correct me if I’m wrong, about forty-three billion
dollars worth of electricity—
((Michael
Shames, Utility Consumers Action Network))
All natural
gas fired.
((Jack))
That was
going to be my next question. How much
of that is wind power? How much of that
is hydroelectric power? How much of
that is renewable?
((Michael
Shames, Utility Consumers Action Network))
The only
wind is the amount of hot air that has been going into describing these
long-term contracts, but there is no wind power.
((Jack))
Is that
because these contracts basically had to relate to the price of natural gas in
order to tell a company that hasn’t even built a plant yet, “Yeah, here’s what
we want to do, and we’ll relate the price to a commodity like natural
gas.” Is that just the only way you can
do it?
((Susan
Bakker, California Energy Commission))
No, not at
all, and as a matter of fact, the Energy Commission has an incentive program that
the legislature put in place at the same time that it put the rest of the
restructuring in place. That brought
about 540 megawatts of new, renewable resources. Many of those have begun operating already, and a number more are
going to begin now. Frankly, in the
process of issuing a request of the proposal that the Department of Water and
Resources issued back in January, they forgot about the renewable component
that we had an interest in, and my understanding is that they had made
adjustments to that, and that they have been negotiating.
((Jack))
One of the
things that we wanted to bring up, and I don’t want to leave it, although it
doesn’t relate directly to this is, does what’s happened this week mean that we
no longer have to worry about Southern California Edison going bankrupt?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Absolutely
not. That has not been resolved, and I
think what we’ve done throughout this crisis is we’ve gone from one press
release to the next, and we’ve just quickly moved from one subject to the
other. For example, the lack of focus
on natural gas, and we’ve completely moved away now from Southern California
Edison to Sempra, and we’re proclaiming victory with that, and we haven’t
solved the SEC problem. They’re still dangerously
close to bankruptcy.
((Jack))
What
happens if they drop?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
I think if
they drop we deal with it or not deal with it just as we have with
PG&E. It won’t be the end of the
world, and, frankly, there are a number of people who think that bankruptcy may
be not an unpleasant option.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
You know,
just for clarification in regards to the Sempra or San Diego Gas and Electric
situation, is really what was called the “balancing account.” The consumers, the ratepayers in the San
Diego Gas and Electric service area were hit with, in essence, a debt on their
bill. They didn’t pay it, but it kept
on building every single month. What is
proposed or what is being proposed is to forgive that debt and then the state
to come up with 750 million dollars to pay that off so that the consumer and
the ratepayer doesn’t pay for it—
((Jack))
Michael is
shaking his head.
((Michael
Shames, Utility Consumers Action Network))
No,
unfortunately, I live and breathe that.
When you look at the agreement very carefully, the agreement essentially
still has San Diego Gas and Electric ratepayers paying nearly the full amount
of the 747 million dollars. They’ve
simply shifted those balancing account costs to other accounts that will be
paid for down the road. There is no
state money going into paying off that 747 million dollars. There’s very little Sempra money going into
it. It’s mostly ratepayers. It’s a bad deal. We’re very unhappy with it.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Well, the
legislation that was enacted last year to freeze the rates and set up the
balancing account was a terrible deal that was done by the legislature. Part of that hot air and—
((Michael
Shames, Utility Consumers Action Network))
Now we’re
going to fight here.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Well, one of my
arguments then was, as soon as we did it for San Diego Gas and Electric, we
forgot the situation for Edison and PG&E.
That was never addressed; we did it because it was a quick, political
fix at a time when some folks were involved in a very hot—
((Michael
Shames, Utility Consumers Action Network))
Those rate
caps saved San Diego. San Diego would
have become a bankrupt county had not some price relief been put into effect,
so we don’t even have to go there—
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
But, Mike,
that’s not what I’m saying. What I’m
saying is that when we fixed San Diego, we ignored the rest of the state.
((Michael
Shames, Utility Consumers Action Network))
We never
fixed San Diego.
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
That’s
right. We never fixed San Diego; we
dealt with a symptom. The legislature
at that time put in a temporary fix, a band-aid, into place to stop the
bleeding. When the bleeding stopped,
they said, “Oh, the patient’s not going to die, so let’s go to the next thing,”
and that’s what’s happened.
((Melissa))
Susan,
bottom line when we look at all these issues about the grid plans that are on
the table and some of the political solutions, are we still dealing with
supply? Ultimately, that is what we
need to online. We’ve talked about some
of the plants that are getting ready, but is it frustrating when you see the
focus on a grid plan or a buyout and not necessarily more megawatts?
((Susan
Bakker, California Energy Commission))
Not at all.
In fact, we’re focusing on all the things that need to be
done. We’re also focusing on the demand
side and making sure that consumers have options for reducing their demand
by making investments in new equipment, and we’re working on supply as hard
as we can, and we’re doing, I think, a phenomenal job of evaluating the environmental
impacts of power plants before we approve them, but I think the financial
situation has to be addressed as well before we can return the utilities to
the role that we think they might play in the future.
In the meantime, demand-side management is a very important part of
the effort that we have to put forward.
((Jack))
Is that the
root of the problem though? I mean,
Southern California Edison and PG&E together incurred about thirteen
billion dollars in losses. They had to
sell the power at a certain price, and they had to buy it at a certain price,
and that debt really has not been dealt with, has it? Didn’t that snowball and cause all the other things to
happen? Do we need to go back and fix
that problem?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Well, we
haven’t addressed it yet. I mean, what
the CEC has been doing is try to expedite the power construction in order to
get plants online. They’ve done an
excellent job of moving quickly through a very complicated process. Unfortunately on our side, we have yet to
address the fundamentals of this problem.
We have yet to address what to do with the debt and how we’re going to
pay it. We have yet to address how
we’re going to do to stabilize these companies.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Or to
define how much the debt is because that’s where you’ve got to start, and then
you figure out ways to fix it, and that’s where the battle begins and is still
stuck.
((Jack))
Michael, as
a taxpayer, do I want to own these transmission lines at 2.3 times their book
value.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Be careful,
Michael. We got into this the last
time.
((Michael
Shames, Utility Consumers Action Network))
I know, I
know. At what price? At what price? That’s the bottom line.
((Jack))
Well, let
me throw out a number. How about 2.3
times book value?
((Michael
Shames, Utility Consumers Action Network))
Nope.
((Jack))
Why?
((Michael
Shames, Utility Consumers Action Network))
It’s too
much. Like any deal, you go into it,
and you try to buy some value where both the purchaser and the seller win. That’s too much, unless some of the money is
used to help the utilities pay off the debts they have. Unless there’s a sharing of the proceeds
from that sale, but absent that, it’s too much.
((Melissa))
Assemblyman
Pescetti, do you have another figure that you think is fair?
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Well, I
don’t think any figure is fair. Mike
and I had this conversation the last time.
Last time, Mike was supportive, I think, of us taking over the
transmission system—
((Michael
Shames, Utility Consumers Action Network))
Still am.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
But not at
2.3 times the value, and that’s the offer right now on the table as well as
others. You know there are several
problems that come in when you deal with the transmission. I sat on the Sacramento Municipal Utilities
District board, which is the second largest municipal utility in the state of
California. We’re involved with
municipal organizations that have ownership and rights to transmission
systems. We’re not talking about taking
over or buying one hundred percent of the transmission in this state. We’re talking about thirty or forty
percent. With San Diego and Edison,
that’s really a small portion, and really the issue is, does the state want to
be and should the state be—should our tax dollars go towards the creation and
the development of a public power agency in the state of California. I don’t think we should. I think that there are entities like SMUD
and the LAWP in this state that have done a better job. They have a strong history; in Sacramento,
we haven’t had a rate increase in ten years.
((Jack))
Power lines
for sixteen percent.
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Well, when
you look at it. Sixteen percent over
ten years, 1.6 percent over that period of time. When I was on the board, there were no rate increases.
((Jack))
What’s the
difference between public power run by Los Angeles or Sacramento and public
power run by the state?
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
In my
opinion, the ones in Sacramento we vote in.
They are responsible to the community.
The Los Angeles Department of Water and Power are selected by the mayor
and report to the city council, so they’re responsible to the city council.
((Jack))
Let me ask
you one quick question. You say that
we’re sending mixed messages to generators, “Come to California,” but then
we’re also setting up our own public power authority. So, what we’re saying is “Come to California, and, oh, by the
way, we’re going to compete with you side by side.”
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
I don’t
know what we’re saying to the generators.
I don’t know what we’re saying to the power industry in general. We’re not just saying, “We’re going to set
up our own power.” We’re also saying,
“If we don’t like what you’re doing, we’re going to seize your power contracts,
and, by the way, if we don’t like what you’re doing with the contracts, then
we’ll just seize the plants. Thank you
very much.”
((Assemblyman
Anthony Pescetti, [R] Rancho Cordova))
Or we’ll
throw you in jail.
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Exactly,
and I—
((Jack))
Meanwhile,
our state plants will keep running.
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Assuming
that we have state plants, but, again, you have to look at the fact that the
state does not have the infrastructure.
We don’t have the staff; we don’t have the expertise; we’re starting from
scratch, and how much will that cost?
((Melissa))
Joe, one of
our viewers sent us a note saying, “Why can’t our own state use its own natural
gas resources?” That was from one of
our viewers in Modesto. Why are we so
reliant on importing natural gas?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
Do you have
an hour?
((Melissa))
Is it true
that about ten percent of the supply that we need is in state and we import the
rest of our natural gas?
((Assemblyman
Joe Canciamilla, [D] Pittsburg))
We import about
eighty percent. We have tremendous
reserves in California. The problem is
that it is low BTU gas, which means that it burns cooler and isn’t quite as
efficient in some cases, and, Second, the gas in Southern California tends to
have more contaminants and can’t be used as readily as the gas in Northern
California. We could use it more. I have a bill that I’m trying to get through
that would allow for local gas producers to bring their gas online. It’s been strongly opposed by the utilities,
and, frankly, I’m not sure they’d want to open up those markets.
((Melissa))
Michael, in
our final few minutes, is the summer going to be as bad as predicted? Are we going to have the eighty-plus hours
of blackouts? I mean, we’ve seen triple
digits, and, so far, no problems.
((Michael
Shames, Utility Consumers Action Network))
Well, the
predictions have been across the board.
My expectation is the outage will be on the lower end of the board. We’re not going to have as many as I think
people feared that we would, but the risk is still there. We’re not out of the woods, and so we’ll
have that specter of blackouts hanging over us unless Mother Nature intervenes.
((Jack))
Okay, so
that means I’m not going to plug my refrigerator in the garage back in.
((Michael
Shames, Utility Consumers Action Network))
No, get rid
of that refrigerator. Get rid of it
right now. You can’t use that.
((Jack))
Okay
(Laughs). Thank you all for being with
us. Thanks to all our guests.
One other
thought to leave you with: A Recent Orbis study found seventy-six percent of
those surveyed are unprepared to go without power for more than an hour.
((Melissa))
So who do
you feel should be held responsible for our state’s power problems? The state, the Governor, or the federal government?
Send us
your thoughts via e-mail at capitolweek.org, and for the latest on the energy
crisis, log onto “At Issue” while you’re there.
((Jack))
Thanks for
your comments on our recent program featuring David Freeman, the Governor’s
senior energy advisor.
Jill from
Citrus Heights writes:
“He never
answered… how many plants had been opened.
Instead, he wants to cap pricing.
That’s what got us into this mess.”
((Melissa))
But Harold
from Auburn writes:
“David is
exactly right. If a bid can go from
twenty dollars a megawatt hour to over eighteen hundred dollars, that is price
gouging.”
((Jack))
Next week,
you’ll hear what the man who signed deregulation into law, former Governor Pete
Wilson, has to say about the energy crisis.
In a rare in-depth interview only on California Capitolweek, he
shares some candid and surprising information.
Begin Soundbite
((Former
Governor Pete Wilson))
The Davis
administration has been engaged in a blame game that has mislead the public or
has attempted to mislead the public into saying or into believing that it was
deregulation that caused the problem.
End Soundbite
((Jack))
That’s
coming up next week.
((Melissa))
And that’s all the time we have this week. Thanks for joining us. Goodnight.