As California moves to stabilize the state's electricity market, a clear picture of that market's future shape may not emerge for weeks or longer. This month's blackoutsthe first ones forced since California's deregulation experiment began in 1998cemented lingering doubts about the approach's future. On Jan. 23, the Bush administration gave the state some breathing room by extending for two weeks two emergency orders from the U.S. Energy Dept. requiring energy producers to sell the state electricity and gas.
Proposed fixes for the ailing system, including calls for massive state intervention, are drawing cautious responses from observers. Yet developers remain confident in the state's appeal. "All indications are that the private sector is prepared to invest billions of dollars in California," claims Steven Kelly, policy director for the Independent Energy Producers Association, Sacramento. "I don't think the California economy is going to suffer greatly," says Bill Highlander, a spokesman for power developer Calpine Corp, San Jose.
The rolling blackouts that began in mid-January riveted the nation's attention on the severity of the state's electricity shortage. Despite a theoretical capacity of about 48,000 Mw, supplies were barely able to meet typical peak demand of over 31,000 Mw, in part because an estimated 10,500 Mw were taken off line for planned and unplanned outages, according to the California Independent System Operator, the agency that controls power distribution to 75% of the state.
On Jan. 19, Gov. Gray Davis (D) signed legislation authorizing $400 million for the state to purchase electricity from power providers for resale to the utilities. The move temporarily eases the pressure on Southern California Edison and Pacific Gas & Electric Co. The giant investor-owned utilities are staggering under an estimated $10 billion in debt caused by massive jumps in wholesale prices despite retail price caps. Now, power providers have been reluctant to sell electricity to utilities for fear they will not be repaid. And San Francisco filed a $1-billion class action suit accusing generators and marketers of price collusion.
DOE's order "is designed to give the governor, the California legislature and other relevant parties time to take necessary action," says new Energy Secretary Spencer Abraham. He noted the need for more electric power construction.
The crisis is affecting many industry segments. The West's leading producer of flat-rolled steel, California Steel Industries Inc., Fontana, began foregoing power Jan. 16 for as much as 18 hours at a time. The bleak situation left the company reassessing its 14-year-old agreement with Edison for 290,000 Mw annually.
"This has not yet affected our ability to deliver steel to our customers," says company spokeswoman Kyle Schulty. She says prices won't be raised.
State legislators called into special session by Davis are sorting through a raft of proposals. State Senate President Pro Tem John Burton (D) wants to create a public power authority to finance powerplant construction and retrofitting. "I haven't seen anything that...will be a comprehensive and long-term solution," says Craig B. Smith, a longtime consultant on energy issues and president of Orange, Calif.-based DMJM/ Holmes & Narver. He prefers a simplification of the state's tough siting process.
Because of the proposals' political sensitivity, industry officials hesitate to comment on some of the more interventionist proposals. State officials have threatened to take over powerplants by eminent domain to assure the power supply (ENR 1/15 p. 16). But such threats are "going to cause people to be cautious," says Kelly. Most industry sources agree with Highlander that "the only long-term solution is to get more generation on line and have a free and open market."
Large-scale relief is still several years away, but the supply shortage will ease this year with 2,412 Mw set to come on line. Another 1,940 Mw are under construction and 14 other projects totaling 6,743 Mw and $4.4 billion in investment are in the approval process. Commercial operation dates start in 2002. Kelly maintains that "we just have to fix the rates and fix the structure and we can have the benefit of a competitive marketplace."