January 11, 2001
1:56 PM   Subscribe

This time it's for real: A Stage Three Power Emergency has been declared in California this evening. Rolling blackouts are expected, especially in Northern California. If MeFi goes down tonight, this is why. Nothing like government intervention disguised as "deregulation" to muck up the works.
posted by aaron (27 comments total)
I don't understand. Why are the wholesale prices of energy so high again?
posted by solistrato at 2:07 PM on January 11, 2001

I haven't found a good link, but NPR had an explanation yesterday. Apparently, the lack of rain has dropped water levels behind dams, resulting in less hydroelectric power being made available. Also, there have been no power stations built in California in ten years, meanwhile the tech revolution has increased power demand to record levels. So, everything worked out just perfect for disaster. Yay for us!
posted by honkzilla at 2:26 PM on January 11, 2001

Someone pointed to this k5 story as a really good explanation of what happened to the power in California.
posted by zempf at 2:35 PM on January 11, 2001

Let's hear it for voodoo economics! Of course handing public utilities over to private enterprise results in the worst kind of robber baron capitalism. There were good reasons that these idustries were regulated in the first place.
posted by snakey at 2:35 PM on January 11, 2001

aaron: the government intervenes in the weather?
posted by holgate at 2:36 PM on January 11, 2001

Energy is high for several reasons. Two of the big ones: First, you've got the winter weather which has really hammered us this year. Second, the price of natural gas, the major fuel of new "clean" plants, has risen dramatically due to lack of production and increased use. I'm sure there are some more I'm missing, but those are the big ones as I understand it.

California's problem is that it forced the utility companies to buy power on the open market but prohibited them from making long-term contracts or to pass any increases in cost on to consumers. This has resulted, predictably, in their financial ruin and potential bankruptcy.

Now the California utilities don't have the money to buy electricty and can't raise any more because their bond offerings have been relegated to junk status. The only reason they have any power at all is because the Feds required wholesalers to continue to sell power to them.

Plus, many California plants have been idled for maintenance. They can't run indefinitely and they couldn't shut down earlier because Cali consumes more electricty than it creates (due to stringent regulations on new generation and lots of users).

All of this equals rolling blackouts. (Sorry for the long post)
posted by CRS at 2:36 PM on January 11, 2001

Please explain this to me. Clearly I'm retarded.

"Nothing like government intervention disguised as "deregulation" to muck up the works."

So the government stops regulating....... and that's government intervention? So..... if the government had continued regulating...... then they wouldn't be intervening?

I'm lost.
posted by y6y6y6 at 3:16 PM on January 11, 2001

On one hand you have this thing called supply.

On the other, demand.
posted by Mick at 3:23 PM on January 11, 2001

I'll be standing in my front yard, (just off Sunset Blvd.) with a can of "Acme Riot-Away".

Once again, if anyone knows where I can score a cheap pad in Canada......
posted by Optamystic at 3:27 PM on January 11, 2001

y6: The CA government didn't stop regulating, that's just it. They only restructured the electricity market and slapped the term "deregulation" on it. In fact, the new rules made the State more involved than ever before, in ways that directly caused this crisis.

Here are two articles (1) (2) that explain the whole mess quite clearly.

If you want to see how true deregulation works, look at Pennsylvania. They did it correctly, and everyone there is happy.
posted by aaron at 3:28 PM on January 11, 2001

I think I might (have to) play my harpsichord by candlelight tonight - talk about authenticity!

posted by doublehelix at 3:44 PM on January 11, 2001

Actually, there are a couple plants down right now, and Diablo Canyon 1 and 2 are (in a sentence that scared me more than any other collection of English words I've ever read) "at 20% of capacity due to high surf conditions".
posted by baylink at 4:00 PM on January 11, 2001

The real shame is that the state's web site goes blissfully onward as if there were no crisis. Why no mention?
posted by fleener at 4:24 PM on January 11, 2001

Most of the fun stuff is on the CA ISO site. Especially the press releases.
posted by aaron at 4:30 PM on January 11, 2001

Watching local TV News, you can hear things like "we're in a stage 3 power alert, please stay tuned to newscenter 6 for further reports"

Ahem. Tell people to turn off their TVs.
posted by mathowie at 4:40 PM on January 11, 2001

The power companies were forced to sell all their power generation capabilities and to buy all their power on a spot-market. But they did some really weird things with that spot-market. The various power companies all make bids, and whichever bid is the highest sets the rate that all of them have to pay.

In the meantime, there were three power companies in California which had a special rule applied to them, which went something like this: as long as you have bonds outstanding (as long as you're in debt) then we're going to limit your rates and limit your income. Once you've managed to pay off all your debt, then you'll be permitted to raise rates without our permission. Say what?

Of the three, one slipped through the cracks and that was San Diego Gas & Electric. When they sold their powerplants, it gave them enough cash to pay off all their bonds. As a result, we here in San Diego aren't faced with bankrupcy of our local power company; rather, we're looking at massive increases in utility bills. I live in a two-bedroom apartment, and for the (quite unseasonably warm) month of December my gas/electricity bill was $90, about three times what it was a year ago.

But Pacific Gas & Electric and Southern California Edison can't do that; they're under strict controls on what they can charge their customers, but there's no controls on how much they have to spend -- and they've been spending a lot more than they're taking in. They've lost something like $7 billion over the last year because of this disparity. They've been financing the deficit by borrowing and by selling bonds, but now they have no credit left and their bonds have been rated "junk". The only reason they still have power to sell is that Washington ordered the power generators to keep shipping power in even though PG&E and SCE have no money to pay for it.

So too bad for California, right? Well, it's going to affect a lot more than that. Part of why the market has been dropping is because a lot of major banks are quite exposed here, having loaned a lot of money to PG&E and SCE, and the whole banking sector has been down. It's affected other things, too. Something like 8% of the total GDP of the US gets its electricity from those two companies. If any of the major power companies here go under, it's going to have a ripple effect on the whole economy and it might set off a full-scale recession.

So let's hope that there's at least some intelligent life left in Sacramento and that they'll find a way out of this mess before it's too late.
posted by Steven Den Beste at 4:50 PM on January 11, 2001

Interesting take on this topic, albeit broader focus, in the October 2000 issue of Harper's. The title? "Power Trip: The coming darkness of electricity deregulation."
posted by Joe Hutch at 4:51 PM on January 11, 2001

"The CA government didn't stop regulating, that's just it. They only restructured the electricity market and slapped the term "deregulation" on it. In fact, the new rules made the State more involved than ever before, in ways that directly caused this crisis."

Aaron forgets to mention the cogent fact that Pacific Gas & Electric cowrote the legislation that deregulated power in CA. PG&E was only too happy to call the new structure "deregulation", and to crow about how these free-market improvements were going to make things better for everyone.

More recently, PG&E's corporate owners have been making out like bandits whilst crying poverty and begging for rate increases. Check out the SF Bay Guardian's take on PG&E's situation and misinformation.
posted by wiremommy at 5:36 PM on January 11, 2001

PG&E is one of the sorriest organizations I've had a chance to work with. Their billing cycles are months out of whack. They sometimes find billing mistakes years later and expect customers to pay for those mistakes. Inefficiency runs rampant.

I'd like to think that if they streamlined themselves, and got some serious strategic management in place, they'd be able to take energy crunches in stride instead of claiming they'll go bankrupt.
posted by Neb at 5:52 PM on January 11, 2001

What the hell is going on in California? Fires, energy crisis, floods. All you guys need is an earthquake and another nice big riot.

I agree with Wiremommy. This whole thing smacks of the S&L bailout of the 80s. Charles Keating, a former Republican National Committee chairmen, lobbied to insure S&Ls, got his laws, then promptly started looting. It's exactly what the utilities did here. They lobbied for changes, helped write the laws, then promptly started looting. Especially as evinced in San Diego, as Steven noted. The very day SDG&E was free of any legal obligation they tripled their rates. Price gouging speaks for itself.

Calling it “government intervention” is like removing sidewalks and saying it’s “pedestrian intervention”. By re-writing the laws the market now exponentially favors the companies, so guess what happens? Consumers pay the price and may even be forced to bailout PG&E from its own mistakes. I’m amazed anyone is surpised by this.

Power Trip: The coming darkness of energy deregulation”. Here’s a quote on another way consumers got shafted out of “savings” the utilites described in their propoganda:

“...construction charges onto electric bills that customers had no choice but to pay. But under deregulation, start-ups that aren't saddled with old exorbitant nukes [nuclear power plants —me](using instead currently inexpensive natural gas) can sell electricity for far less. Under pure competition, dinosaur utilities would go extinct overnight as their customers flee--except they've convinced legislatures everywhere to give them a couple of whopping breaks.

“After all, they argue, it's not their fault that they are stuck with white elephants like Palo Verde: For decades we ratepayers, through our public utility commissions, required utilities to meet existing and future customer demand. To compete in the new unregulated environment, utilities say they must recover the costs of those uneconomical investments by continuing to dun customers for them on monthly statements, even those consumers now buying power from someone else.

“Such "accelerated transition billing" for these "stranded costs" wipes out any deregulation savings for most customers and, according to angry public interest groups, has provided the industry with a $300 billion windfall--twice the size of the savings and loan bailout. Critics also note that back in the 1970s, despite warnings of runaway costs, utilities begged regulators' permission to erect nuclear plants; PNM and its regional partners also built the nation's largest coal-fired plant complex in Farmington, New Mexico. But since the energy crisis simultaneously taught Americans to conserve, demand for all that power didn't materialize until very recently. The result was a substantial excess in generating capacity--one reason why corporate consumers started pressuring for energy competition, so that prices would drop to reflect this overabundance.

“But the power industry has frantically opposed completely unfettered competition. As squads of lobbyists relentlessly remind state lawmakers, there's more money invested in the half-trillion-dollar American electric utility industry than in banking, telecommunications, and airlines combined. Utilities employ tens of thousands. Nationwide, they pay billions in property and income taxes. Imagine, the lobbyists warn, what major utility bankruptcies would mean to their communities. Legislators quickly get the picture, and, in New Mexico as elsewhere, they've obligingly left open the matter of what, exactly, constitutes a stranded cost. Besides antiquated infrastructure, there are as-of-yet incalculable implementation expenses in switching to retail competition. And much of a utility's net worth depends on the future price of power, conveniently meaning that if electricity gets cheaper, as promised under deregulation, more old debt may be claimed as stranded. PNM's own stranded-cost estimates are so vague--ranging from $119 to $700 million--that New Mexico lawmakers have agreed to let the company bill ratepayers for 50 percent of their current debt to start and then to let it petition the legislature for more "relief" in the future. Which PNM undoubtedly will: in many other states, utilities have convinced legislators to allow them to recover up to 100 percent of stranded costs from consumers.”

In effect, there is no such thing as “deregulation” — only re-regulation favoring corporate owned utilities. The reason behind this is simple: the power companies would never allow a free market to rule. They require legislation that gives them huge tax breaks, no-interest loans and subsidized operations.

De-regulation is good theory; so is cold fusion. Neither exist.

posted by capt.crackpipe at 7:29 PM on January 11, 2001

Whew! That was a close one!
posted by Steven Den Beste at 8:59 PM on January 11, 2001

Hey that's crazy! We've got a far more rational electricity system over here. Let me explain:

In our system we have true competition. Every room in my house has got two light switches on the wall, one from each electricty supplier. At the moment I have one from United Energy and another from Icon Energy.

When I need a good strong light to read by, I always choose United. Sure it's a little pricey but you know it's got a good strong wattage. The light switch even thanks me for using their service and they've got a great loyalty program!

But mostly I'm happy to go with Icon Energy. It fluctuates a bit from time to time, has the occasional brown-out but, you know, it illuminates okay mostly and it's pretty cheap. I'd use it for the front hall light but never for the lounge room especially if I had guests. I have my computer running on a fly-wheel backup generator in the basement.

Now that's what I'd call real competition at work, the free market system at its best. I was thinking of subscribing to Solaris Energy too, I hear that they can supply heavy machinery at 15 amps and they only use wind-power but unfortunately they don't have plans to cable my street.

posted by lagado at 9:16 PM on January 11, 2001

Where's "over here", Lagado?
posted by Steven Den Beste at 9:30 PM on January 11, 2001

Nothing like government intervention disguised as "deregulation" to muck up the works

Don't forget all of the NIMBY community and environmentalist groups who've bitterly fought every attempt that the public utilities have made over the last 10-15 years to expand the state's power grid. Interesting that they don't seem to mind if other state pollute their air, empty their rivers, and drop their water tables below sustainable levels on California's behalf.

Recent polls showing that a majority of the state's residents don't believe that there's a real shortage of electricity clearly demonstrates that the real culprits depleting the supply of electricity are the massive unreality generators stationed around LA and the Bay Area beaming waves of denial into the soft grey matter of the local inhabitants.

Face it, this state has too many people living on marginal land and they need to scale back and learn to live within their means.
posted by MrBaliHai at 8:08 AM on January 12, 2001

Bali: Seeing as how all the utilities involved in this fiasco are undergoing extensive audits, your assertion may be a bit premature.
posted by capt.crackpipe at 9:29 AM on January 12, 2001

Hoo boy! We're in trouble. Negotiations have completed, and the only thing remaining is for the California legislature and Governer to pass legislation and make it law before the stock market opens Tuesday. Yeah, right.

I liked this: Consumer advocacy groups... ...have denounced any attempt to allow the utilities to pass through the soaring wholesale power prices charged by out-of-state generators, saying the industry has enjoyed big profits since deregulation and should have been better prepared for the state's current tight supplies.

Even if true, the fact remains that the consumers will suffer a lot more if their power companies go offline than they will if there's a rate hike.
posted by Steven Den Beste at 8:20 AM on January 14, 2001

I didn't mention any of the things in wiremommy's link above because just about every point in that article is either irrelevant to the crisis at hand or flat-out wrong. In fact, some of the statements in that article are so blatantly false that I'm having a hard time believing that the author isn't intentionally misleading her readers. It shows a complete lack of knowledge of how financial markets operate, combined with the usual hackneyed socialist canards about profits being proof of evil unto themselves. This is the sort of piece that Wall Street Journal employees print out and pass around the newsroom so that everyone can get a good laugh. Where to start...

Aaron forgets to mention the cogent fact that Pacific Gas & Electric cowrote the legislation that deregulated power in CA.

Unless they wrote every word of the "deregulation" bill and the Legislature passed it as-is, this is completely irrelevant. Usually, big companies that will be directly affected by massive changes in state laws get to sit around the table and have their say. That's SOP for any industry/state government relationship. What PG&E did was called "go along to get along;" they got as much out of the bill as they could, and the liberals in the state legislature held firm on what they wanted in return. Thus, the half-deregulation, half-reregulation. (And then both sides went out and put a positive PR spin on it for their mutual benefit? Quelle suprise!) Oh, BTW, with all this talk about how PG&E did all this evil, I must ask: What about the other two big power companies in California? PG&E wrote the law for them too? They just sat back and let PG&E control their destiny? Or is it perhaps that the author picked and chose her attacks, since SFBG readers don't want to get worked up about anyone but their own local "enemy"?

More recently, PG&E's corporate owners have been making out like bandits whilst crying poverty and begging for rate increases.

Making out like bandits? Bull. Yes, they made money in the past. Unless all that money was kept on hand, it's irrelevant now. And the money wasn't kept on hand. Until last week, PG&E paid out a quite nice dividend to its shareholders. All the rest was invested in other things. In other words, it's gone. That's the way the financial world works. Not that it would have mattered that much if they had kept much of that money; see below.

Crying poverty and begging for rate increases? Well, yeah. Take a look at wholesale energy prices out there, combined with the legislated rate cap. In case you haven't noticed, PG&E alone is borrowing one million dollars per hour in order to buy power. That would have eaten up any leftover profits pretty quickly. Which it has, of course; that's why they're borrowing. And that's why they're about to go bankrupt. For real. The parent company, not just the utility. S&P doesn't put companies on Creditwatch as part of some silly little game to screw consumers and get state governments to agree to rate hikes. This is a publicly-traded company, with shareholders ranging from little old ladies who relied on the dividend income, to, yes, wonderful liberal projects such as public school teachers' pension plans. They're all suffering a lot because of this. Even the evil PG&E execs, who have most of their wealth tied up in PG&E stock (which is tanking), and who will be making $0 per year if the company goes out of business.

And we're not even beginning to get into all the other contributors to this mess, such as government and environmentalist refusal to allow new power plants to be constructed, consumer refusal to cut back on energy consumption, etc. (The latter, of course, is largely due to - what else - the state's cap on rates. They don't see any increase in their rates, and yet the lights are still on, so obviously this means the crisis has been manufactured purely to screw consumers.)

(using instead currently inexpensive natural gas)

False. Natural gas prices out there have gone through the roof as well.
posted by aaron at 3:05 PM on January 14, 2001

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