One Year Ago: Power-Starved California Turns To Internet Auction

Originally published on January 25, 2001 and brought to you today as a time capsule.

In a bid to cool the energy meltdown that ignited rolling powerblackouts in California, Governor Gray Davis announced Tuesday that thestate is going to hold an Internet auction to secure long-term, low-costelectricity contracts.

“I expect these bids on long-term energy contracts should stabilize themarket and drive the price of electricity down,” said Davis. “This is a keystep in our efforts to keep the lights on in California at a reasonable price.”

The 27-hour long auction, which began Tuesday morning, is being conductedby the state’s Department of WaterResources (DWR). According to a statement issued by the governor, thesealed bids are for peak and off-peak energy contracts to extend over sixmonths, three years, five years and 10 years.

The sealed bidding processwill remain open until noon PST Wednesday.

Bidders in the online auction must have an investment-grade rating fromeither Standard & Poor’s or Moody’s. If the rating requirement cannot be met, the DWR calls for bidders to provide an additional form of security.

Crisis State

The high-stakes auction rollout comes on the heels of an emergency orderissued by Davis on January 17th. That order placed the DWR in charge of negotiatingcontracts and arrangements for electricity to help the state mitigate the effects of the energy crunch.

During a special session on energy called by the governor last week, theCalifornia State Senate also authorized the DWR to tap taxpayer money to purchase up toUS$400 million in energy until February 2nd.

Prior to the passage of thisemergency bill, which was authored by Senator John Burton (D-San Francisco), the DWR had purchased $38 million worth of energy.

In the past week alone, however, the DWR has brokered day-ahead andhour-ahead power contracts totaling more than $75 million, in many caseswith little time to spare before blackouts and related warnings hit more areas.

The rotating power outages have affected more than a million homes in the state.

Domino Effect

Because of what has now been judged a disastrous experiment in gas andelectric deregulation, California’s power companies are now in direfinancial straits. The deregulation law, which was passed in 1996, barsutilities from passing escalating wholesale power costs onto consumers.

The state’s two largest utilities, Pacific Gas & Electric (PG&E), whichpowers much of Northern California, and Southern California Edison, are onthe brink of bankruptcy and say that they cannot afford to pay currentmarket prices for energy.

Both companies are billions of dollars in debt, and both say they will notbe able to remain in business unless they are free to spike the priceconsumers pay — or unless providers drastically slash the cost of energy.

To make matters worse, many experts believe the situation could grow moreserious, plunging the entire United States into its worst energy crisissince the 1970s.

Choices Ahead

Despite the dire situation, state power officials said they were able toward off blackouts Tuesday by buying electricity from Canada.

Meanwhile, the California legislature is considering several other possibleresolutions to the crisis, including one which would allow PG&E and Southern California Edison to donate their hydroelectric plants to the state.

In exchange, the state would begin purchasing additional power throughlong-term contracts and on the spot market, choices that have led toenormous debts for the utilities. The plan would make California one of thelargest owners of hydroelectric power in the U.S.

Another plan, which has been passed by the California State Assembly, would put the state in the electricity business for up to five years, buying power at lowrates and selling it directly to consumers. In order to be implemented, theproposal needs to be approved in the state senate and signed by thegovernor.

On the Watch

According to published reports, Davis is reviewing both suggestions, butconsiders the first alternative more viable.

Some of the plans have drawn intense criticism. Earlier this week, advocacy groups delivered to Davis more than5,000 signatures collected from consumers, protesting what they calla multibillion-dollar bailout for the utilities.

At the same time, U.S. Energy Secretary Spencer Abraham and other Bushadministration officials met Monday in Washington, D.C. to examine California’spower crisis.

Abraham has not yet announced whether he will extend anemergency order (made by his predecessor, Bill Richardson) that kept powerflowing to California despite worries over the solvency of the utilities. That order was slated to expire at midnight Tuesday.

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