California Regulators fear blackouts

SACRAMENTO - - Ever since a series of blackouts shocked California and bemused much of the rest of the nation in early 2001, preventing outages has become the rallying cry for virtually anything electric that anyone has wanted to build, buy or sell.

Though the blackouts were caused by market manipulation rather than pure shortages, the state is still so spooked that it sometimes seems as if "all we care about is that we have power, damn the cost," said Loretta Lynch, a member of the state Public Utilities Commission.

"The problem is, cost really matters when we have nearly the highest electricity costs in the United States," she said.

Today, the not-for-profit agency that runs much of the electric grid, the Independent System Operator, stands virtually alone among experts in predicting that blackouts could return this summer if enough things go wrong. For that to happen, hot weather or unexpected economic growth would have to push demand for power unusually high as supplies simultaneously were drained by low precipitation, power plant breakdowns or other troubles.

"It's the ISO's job to worry. But by most people's standards, we've got a glut of (power) capacity in the West," said Mike Florio, a consumer attorney and ISO board member who dismisses talk of blackouts in 2004 or '05 as "Chicken Little."

An internal analysis by the state Public Utilities Commission pokes holes in the ISO forecast, saying it exaggerates potential plant closures and excludes benefits from upcoming power plants outside its jurisdiction.

The ISO acknowledges that plants it lists as mothballed could be called back into service in one to six months. It agrees it is not factoring in municipal utility projects, such as the 500-megawatt power plant that the Sacramento Municipal Utility District is building, which could ease limits on electricity imports once SMUD starts generating more power locally. The ISO considers those issues irrelevant.

"Bad things happen," said ISO operations engineer Mary Jo Thomas. "We don't look at the probability of it happening; we look at the fact that it's happened in the past. ... We say: 'What do we have to do to prepare for it?'"

The state Energy Commission, which does look at probabilities, predicts that California's energy supplies will be fine through 2010 with average weather. In the kind of heat that occurs about one year out of 10, though, supplies look uncomfortably tight but not necessarily low enough to cause outages in 2006.

The wide range of predictions comes partly because of a basic truth that underlies the state's electricity outlook: As California keeps growing, sooner or later it will need more power. That might happen by 2006. It gets likelier by 2008, and it's virtually certain by 2010, many experts agree.

That is plenty of time to build what's needed, but it is not a lot of time to argue over who should be building and what's going to happen to the remains of California's experiment with electric industry deregulation.

"You can't just wave a magic wand and have a power plant spring out of the ground," said Bob Foster, president of Southern California Edison, the state's second-largest utility. "Whether it's 2006 or 2008 is not all that relevant. If you have a need, you really have to start building now."

The first debate about energy policy could well come in March, when utility regulators release their appraisal of a proposed hybrid plan most often described, in an unglamorous shorthand, as "core/non-core."

The concept is that small businesses and residential customers get fully regulated service, with no option to switch suppliers. They become the "core" supplied by their local monopoly utility.

Bigger customers, the businesses that lobbied hard for deregulation in the first place, would get it back. They would be "non-core," and could leave utility service if they found better offers elsewhere.

Gov. Arnold Schwarzenegger has given strong indications that he favors such a split system, saying he hopes to make markets work and stressing that big and small customers have different needs.

U.S. Sen. Dianne Feinstein, who echoed ISO blackout warnings this month as a way to urge the governor to action, supports the idea. State Assemblyman Keith Richman, R-Northridge, who has written a bill calling for such a split market, wants to revive his push this year.

Consumer groups promise a huge fight, fearing that the concept could shift extra costs onto small customers and also could backfire and stifle construction of power plants.

"I really go crazy when they say we need to do this to stimulate new investment," said Florio, an attorney for The Utility Reform Network, or TURN. Based on other markets and past experience in California, he said, larger customers tend to sign shorter contracts and rely more on spot markets. It is regulated utility investment, with its traditional 30-year paybacks, that can better fund power plants, he said.

There is no way yet to know if a split market will work, said John Geesman, a member of the state's Energy Commission. Rules to protect small customers from bearing an unfair share of costs likely also would mean fewer benefits for big customers, he said. With so much interest, though, the state needs to take a hard look at "how to make such a system effective and equitable to all."