by John M. Curtis
(310) 204-8700

Copyright March 20, 2001
All Rights Reserved.

ed up with past due bills, misled by empty promises, and unwilling to extend more credit to cash-strapped utilities, energy suppliers finally pulled the plug on the California Independent System Operator. Unable to meet its demand, the Cal-ISO finally implemented its dreaded statewide plan causing rolling blackouts. As expected, power outages affected customers of Southern California Edison, Pacific Gas & Electric, San Diego Gas & Electric, and certain cities dependent on their services, covering over 9 million consumers. Only Los Angeles and a handful of smaller cities escaped the crunch. Stealing the headlines, Energy Secretary Spencer Abraham wasted no time fanning the flames, calling the crisis “the most serious shortage” since the 1970s. While there’s certainly a “shortage,” the cause of the shortfall is what’s at stake. “The good news is that America’s energy problems can be solved,” said Abraham. “The bad news is that the situation in California is not isolated. It is not temporary. And it won’t fix itself.” Speaking in platitudes, Abraham’s bleak assessment does little to reassure Californians faced with power outages and skyrocketing prices.

       Like the oil crisis of the early ‘70s, there’s little consensus as to what’s causing California’s current energy problem. “There is a shortage of electricity in the state,” said S. David Freeman, the general manager of the Los Angeles Department of Water and Power. “That is a fact. The general public doesn’t seem to believe it, but it’s true,” still not pinpointing what’s suddenly responsible for California’s power crisis. Yes, of course there’s a shortage, but who’s at fault? While there’s, no doubt, great demand for energy in the nation’s most populous state, administration officials are hard pressed to explain the immediacy of California’s problem. Blaming it on exploding demand based on dramatic business and population growth overlooks one very important fact: California deregulated its electricity industry in 1996. Since then, utilities were stripped of their generating capacity, forced to buy power on the mercurial open market, handcuffed from hiking rates and buried in red-ink—pushing them closer to the brink and the state into chaos.

       Conserving cash, utilities flat out refused to pay their bills causing the current power crisis. Without getting paid, you can’t blame electricity suppliers from shutting off the lights. Gov. Davis can’t have it both ways: Saving utilities from bankruptcy and, simultaneously, refusing to pay their debts. “They’re [utilities] going to have to make the payments,” said Davis to a labor group, but so far cash-strapped energy producers can’t take that to the bank. Now we get to the heart of the problem. Gov. Davis and the legislature can’t count on utility companies to pay their bills. Like it or not, the state must either pony up the cash or face continued shortfalls. With utilities owing energy suppliers billions of dollars, it’s up to the Gov. Davis and the legislature to figure out how to meet their obligations. Paying $50 million a day to large energy suppliers, California can’t leave hundreds of smaller power brokers in the lurch. Supplying thousands of megawatts, “qualifying facilities” account for up to 20% of California’s electricity supply. Without having a solid vehicle for paying these suppliers, California leaves itself vulnerable to endless shortages.

       “There’s no hidden pool of energy,” remarked Abraham. “California and other power-strapped states will never solve the power crisis they confront until they resolve the conflict between demand and supply,” refuting the idea that outside power brokers have pulled the plug on California’s electricity. Of course there’s no pool of energy. Electricity isn’t stockpiled like natural gas or petroleum. But it’s also a well-known fact that many unpaid power suppliers have stopped supplying the Cal-ISO. “I think we’re just getting to the breaking point for many of these businesses,” said Ed Tomeo, president of UAW Energy Operations, a San Ramon biomass and gas-fired plant, planning on taking his company off-line. Unable to get paid, Tomeo—like other alternative energy suppliers--claims to have run out of money to buy natural gas. Because of non-payment, about 3000 megawatts of power have already been taken off-line, adding to the state’s growing electricity shortfall. Contrary to Abraham’s view, today’s energy deficit isn’t due to exploding demand or even shortages in generating capacity, it’s due directly to cash-starved suppliers cutting off deliveries.

       Finding fault, “It sharpens the perspective that the governor’s inaction and delays are now a major cause of these uncertainties,” said Assemblyman Bill Leonard (R-San Bernadino), taking a cheap shot at beleaguered Gov. Gray Davis, now caught between a rock and a hard place. Focused on long-term contracts with major power brokers, Gov. Davis ignored “qualifying facilities”—known as alternative producers--supplying more than 3000 megawatts of power to Cal-ISO. Now owed around $1.5 billion by the state’s largest utilities, what were they supposed to do—give it away for free and go broke? “Although I feel it is unfortunate for consumers, I don’t blame [them] at all,” said Assemblyman Fred Keely (D-Boulder Creek), correctly pinpointing the exact cause of the problem. Blaming it on inflated natural gas prices, shut down power plants or widespread shortages ignores that fact that even utility companies must pay their bills.

       Dipping into the state general fund can’t last forever. Spending $50 million a day, the state treasury is no money tree—and time is running out. Floating $10 billion general obligation bonds to pay for California’s voracious energy appetite can’t last forever either, without collecting the hard cash. If utilities can’t meet their obligations, then the state must take over all collections and pay their bills. There’s absolutely no excuse for failing to pay legitimate energy producers who supplied Cal-ISO in good faith. Useless federal edicts demanding that energy suppliers justify inflated prices won’t get producers paid and stabilize supplies. “The failure to meet this challenge will threaten our nation’s economic prosperity, compromise our national security and literally alter the way we live our lives,” said Abraham, whipping up the kind of panic that puts easy solutions out of reach. While we’d all like more power plants, today’s electricity crisis isn’t caused by widespread shortages and spiraling demand. After all the brainstorming and fancy fixes, the bills still need to get paid.

About the Author

John M. Curtis is editor of OnlineColumnist.com and columnist for the Los Angeles Daily Journal. He’s director of a Los Angeles think tank specializing in political consulting and strategic public relations. He’s the author of Dodging The Bullet and Operation Charisma.

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