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Blackouts hit California as utilities' financial woes deepen

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January 19, 2001 

SACRAMENTO, California-- (AP) - Californians faced a second day of rolling blackouts Thursday as the state readied to spend millions to keep electricity flowing and prevent money-strapped utilities from going broke.

Hours after people across northern and central California saw everything from their lights to their heaters, elevators and bank machines abruptly switched off, Gov. Gray Davis ordered the state to temporarily start buying power from wholesalers and provide it to power-short utilities.

"I'm declaring a state of emergency in California," the governor said during a late-night news conference Wednesday.

Energy officials said that Thursday could be even more difficult. Just a minute after midnight, the the Independent System Operator, keeper of the state power grid, issued a Stage 3 alert, with power reserves approaching or falling below 1.5 percent.

"It's almost a carbon coby of yesterday, a little better but not much," ISO spokesman Patrick Dorinson said just before dawn Thursday. The ISO had 75 percent of the power the state needs for the day lined up and is scrambling to find the rest to avoid blackouts, he said.

An unstable market, the Pacific Northwest's own limited supplies of hydroelectric power and other woes meant the state was likely to be searching the open market for as much as 55 percent of its power during peak use periods Thursday.

During Wednesday's outages in San Francisco, Sacramento, Modesto and others cities, power was shut off to as many as a half-million customers at a time.

Davis' emergency order will allow the state Department of Water Resources to use funds in its current budget to buy power. Davis said the plan was necessary to fend off further blackouts and prevent utilities' bankruptcy, which would otherwise be imminent.

"The whole purpose of this is a bridge to a long-term solution," Davis said.

The governor made no mention of making utilities pay for the power, which could cost taxpayers tens of millions of dollars over the next few days.

Davis called on the Legislature to authorize a longer-term plan to buy power and provide it to the cash-strapped utilities. If such legislation isn't adopted, the governor said, several power suppliers have threatened to call in their debts on California's two largest utilities, Southern California Edison and Pacific Gas and Electric Co., which could force them into bankruptcy.

State regulators came Wednesday within 1,300 megawatts - enough electricity to power 1.3 million homes - of ordering the first statewide blackouts since World War II.

Automated teller machines along several blocks of downtown San Francisco shut down and at least two students were trapped in an elevator that stopped between floors at the city's Hastings School of Law. The students eventually used a ladder to climb out.

Power was kept on at such essential facilities as hospitals and airports.

Some people blamed the utilities, accusing them of cutting power as a ploy to raise rates.

"This is happening because the utilities mismanaged their finances. The state ought to just take them over. The bottom line is that this is all about greed," said Kenneth Carrero of San Ramon who voluntarily turned off his computer to conserve energy.

Others blamed the wholesalers who sell power to the utilities. Among them was the city of San Francisco, which was preparing a lawsuit accusing wholesalers of manipulating supplies to keep prices high. The action could be filed as early as Thursday.

Wholesalers vehemently denied such allegations, as well as Davis' contention they were about to force Edison and PG&E into bankruptcy.

On Wednesday, PG&E skipped a scheduled dlrs 33 million payment to investors, the first time it defaulted on a bill. Edison defaulted on bills totaling dlrs 596 million on Tuesday.

Tom Williams of Duke Energy said suppliers were giving the utilities more time to pay.

"But we have bills to pay, too," he said. "We're part of the solution, we're not driving anyone into bankruptcy."

Under Davis' proposal, emergency legislation would be in effect for a week to 10 days or until lawmakers pass a measure allowing the state to enter into long-term contracts with wholesalers to buy power and resell it to utilities.

That legislation, approved earlier this week by the Assembly, would let the state sign long-term contracts with electricity wholesalers to buy power at about one-fifth the current market rate. The power would be resold to consumers, through the utilities, at the state's cost, plus a modest administrative charge.

Questions and answers on California's electricity crisis:

Q: What happened to the power Wednesday?

A: For the first time in the crisis, California regulators ordered rolling blackouts. Lights blinked off in parts of San Francisco, Sacramento, San Jose, and Silicon Valley. As many as 500,000 customers were affected. The rotating, hourlong blackouts across the northern half of the state were halted in the afternoon but regulators warned that blackouts were likely Thursday. Late Wednesday, Gov. Gray Davis issued an emergency order giving a state agency authorization to buy power as part of a plan to stave off further blackouts and save the utility companies from bankruptcy.

Q: What happened with California's power market?

A: For months, the state's utilities have been paying dramatically higher costs for wholesale electricity. Pacific Gas and Electric Co. and Southern California Edison Co. couldn't recoup those costs. A rate freeze - part of the state's 1996 deregulation law - capped what they could charge their customers. The utilities say they have lost more than dlrs 10 billion since June.

Q: Why are prices so high?

A: There are several factors. Among them, the price of natural gas, used to generate electricity, has risen; the Pacific Northwest and northern California, heavily dependent on hydroelectric power, have had little rain and snow; and supplies have been tight in the rest of the country.

Some state officials accuse wholesale power suppliers of artificially inflating prices, an allegation wholesalers vehemently deny.

Q: How does all this affect homes and businesses?

A: The state Public Utilities Commission has let SoCal Edison and PG&E temporarily raise rates about 9 percent for homes and up to 15 percent for businesses. The utilities say this increase isn't enough to cover costs.

Q: What happens next?

A: The California Assembly approved a plan Tuesday night under which the state would buy electricity from wholesalers and sell it to utilities at a reduced rate. The measure now goes to the Senate.

Q: Why was deregulation put into effect?

A: Traditionally, California has had higher electricity costs than the rest of the United States. In the mid-1990s, large customers wanted a break in their energy bills and said competition could lower rates. The utilities also wanted out from under regulation. Consumer groups - now the most vocal critics of deregulation - were neutral on the plan, which took effect in 1998.

Q: What was deregulation supposed to do?

A: The idea was to require utilities to buy power on the open market, presumably at lower, competitive costs and pass those savings on to consumers. The rate freeze is to expire in March 2002, once utilities finish selling off power-generating assets to boost competition.

Q: What happened?

A: When deregulation was approved, the state had plenty of electricity. But the state's grid has since become stressed by higher demand, aging power plants and less imported electricity. Wholesale prices have increased roughly fivefold since summer.