Putting Ratepayers on the Hook for New Gas-Fired Power Plants Will Only Make Matters Worse

California Senator Dianne Feinstein has proposed putting ratepayers on the hook for new gas-fired utility power plants as a method of protecting them against future power shortages. Warning of electricity shortages as early as this summer, Feinstein wrote a letter to Governor Arnold Schwarzenegger in January asking him to cooperate with her plan.

Feinstein proposed that consumer prices charged by the state's three investor-owned utilities, including Pacific Gas and Electric and Southern California Edison, be based on their costs rather than the less flexible three-year rate schedule process now used by the California Public Utility Commission. In effect this would mean handing the utilities back unlimited monopolies and allowing them to negotiate new power contracts and build power plants at ratepayer risk and expense.

Feinstein said steps are needed to make sure the rate structure is flexible enough to respond should there be a future shortage. In the 2000-2001 crisis, PG&E filed for bankruptcy protection and Southern California Edison almost did because they were prohibited from raising retail rates as wholesale costs escalated. Feinstein reasoned that ratepayers should be forced to shoulder any rate increases as a form of "flexibility" to protect the utilities. Rather than having a crisis, the state would instead raise rates and force consumers to pay whatever the increase is. Feinstein also proposed forcing investor-owned utilities to plan and construct more than enough generating capacity to meet demand forecasts at ratepayer risk and expense, ensuring investments in transmission lines, and accelerating alternative energy and cogeneration planning and construction that no bank is willing to underwrite due to the volatility of natural gas prices and a lack of domestic supply.

Feinstein emphasized the fact that half of the state's generating plants, all powered by natural gas, are now privately owned as a consequence of the state's deregulation law, AB1890, which she promoted as a national model for other states to emulate after its passage in 1996. While many of those plants may be retired because of inefficiency and dramatically increasing natural gas prices that make them unprofitable to operate, the rush to construct new power plants has stalled, with less than a third of the permitted new generating plants currently under construction. What she did not mention was that so few have been built because no bank will underwrite power plants whose fuel source - natural gas - has increased in price by 50% in the last six months and is expected to double in 2005.

While Feinstein's dire warnings of an impending power shortage is based on an October report by the California Independent System Operator that runs the state's power grid, the immediate outlook has improved since the report was completed according to the state Independent System Operator. ISO spokeswoman Stephanie McCorkle told the Sacramento Bee that rainfall and mountain snowpack in Northern California is 126 percent of normal so far this winter, meaning a surplus of hydroelectric generation this summer when power demands for are highest. The October report by the ISO said that "adequate supply will most likely be available to meet the peak demands for the next five years." According to McCorkle, the ISO's best guess now is that crunch time for the power grid is two years away. "We're feeling a little better about this summer," McCorkle said. "But 2006 is more troublesome."

The California Public Utilities Commission has reached a similar conclusion. California's top utility regulator downplayed fears of potential energy shortages in a letter of respose to Governor Schwarzenegger and Senator Feinstein. In his letter, CPUC President Michael Peevey said the ISO study did not take into account power projects that had not started construction as of October 2003 or "interruptible" programs under which large customers can receive power at a cheaper price in return for agreeing to have supplies cut during an emergency.

"The CPUC believes that the current energy supply portfolio should reliably cover electricity demand, even with the potential retirement of some existing power plants," he wrote.

Related Articles: Natural Gas Prices Jump as California's Clueless Politicians Call for Construction of New Gas Power Plants to Avert New Energy Crisis (December, 2003)

Natural Gas Power Plants: The Next Bailout Scandal? (Oct 2002)

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Founder and Director of Local Power, Paul Fenn is author of California's Community Choice law, AB117 or Chapter 838 of 2002, which allows municipalities to switch their communities to alternative energy providers - as well as author of San Francisco's 2001 voter-approved "Solar Bond" or "H Bond" authority, and a plan to use H Bonds and Community Choice aggregation to take 1/4 of San Francisco's electricity load off-grid by 2012 with solar power, wind power, conservation and energy efficiency technologies. Mr. Fenn is also author of new state "Solar Networking" legislation, Senate 697, sponsored by Pomona Senator Nell Soto. Local Power is based in Oakland, California and may be found at www.local.org

Copyright 2004 by Local Power.