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California Power Supply Falls Again by Associated Press Environmental News Network, January 26, 2001

California's power supply fell to dangerously low level again early Friday, just hours after the warning had been lifted for the first time in days.

The Stage 3 alert, the most serious energy alert that means power reserves are so low that there is a good chance of blackouts, was lifted one minute before midnight Thursday. But the California Independent System Operator, which runs the state power grid, reinstated the Stage 3 alert at 4:32 a.m. PST, and said it would run through midnight Friday.

The stage 2 alert that had been in effect from midnight to 4:32 a.m. meant power officials can still order service shut down to customers that have agreed to curtail energy in a crisis.

There was no immediate word on why the Stage 3 alert was called. Energy managers had earlier suggested they might even be able to go to a Stage 1 alert later Friday, in which people are simply advised to conserve energy.

As Friday began, the biggest threat of the day to most power users appeared to be a heavy winter storm that brought driving rain to San Francisco and several inches of snow to the Sierra Nevada. It knocked out power to more than 40,000 users in Sonoma and Marin counties and parts of the Sierra foothills as it lumbered toward Southern California.

The reinstatement of the alert came as legislators and regulators grappled with solutions to the state's energy crisis, blamed on a deregulation program that went awry.

On Thursday, Federal Reserve Chairman Alan Greenspan warned that if the crisis isn't resolved soon, it could cause a ripple effect throughout the U.S. economy that could undermine the nation's decade-long expansion.

"It's scarcely credible that you can have a major economic problem in California which does not feed to the rest of the 49 states," Greenspan said in congressional testimony, adding that the crisis could reduce investment in the West, which in turn could shake consumer confidence.

He called the situation "a significant problem that this country is going to have to address, and ... rather quickly."

System operators, meanwhile, said as many as 1,000 megawatts of electricity — enough to power one million homes — were saved each day this week through conservation.

Last week, in the midst of a record 10 straight days of Stage 3 alerts, power had to be shut off to hundreds of thousands of users across central and northern California on two consecutive days.

Many more large users, those who had signed agreements to shut off their power during a shortage in exchange for lower rates, also lost electricity for hours at a time. Representatives of many of them were in San Francisco on Friday to lobby the state Public Utilities Commission to let them out of those agreements.

"What we are stuck with is a program that was put together prior to deregulation that makes no sense now," said Phillip L. Doolittle, vice president for finance and administration at the University of Redlands. The school has amassed hundreds of thousands of dollars in penalties by ignoring the agreement and keeping its electricity on to avoid canceling classes.

Lawmakers prepared to work through the weekend to find a long-term solution to the crisis.

Their attention was on a plan under which California would issue bonds to cover the multibillion-dollar debts of its two biggest electric utilities, Southern California Edison and Pacific Gas and Electric Co. The utilities' customers would pay the money back through recently approved rate increases of between 7 percent and 15 percent, which would be kept in force for more than 10 years.

One of the state's most prominent consumer activists denounced the plan as a bailout.

"If that's what they plan to do, they'll have to contend with a ratepayer revolt at the ballot box in 2002," said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

"It's not a bailout," Gov. Gray Davis said. "It accomplishes two purposes: It provides the funding to revitalize the utilities, but it lets ratepayers know they will gain as the utilities gain."

In exchange for issuing the revenue bonds, California would be granted long-term options allowing the state to buy low-priced stock in the utilities. If the price were to go up, the state could sell the stock and use the profits to help pay off the bonds.

The utilities declined to comment on the proposal.

California's two biggest utilities are approximately $12 billion in debt, a situation they blame on the state's 1996 deregulation of the energy industry. Under deregulation they were required to shed their power-generating operations and buy electricity from wholesalers but not allowed to raise rates when prices spiraled upward in a tight market.

With electricity in short supply, Edison and PG&E have been forced to buy it at the last minute, sometimes paying as much as $600 a megawatt.