Saturday Morning News

California Faces Serious Power Crisis

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

MILES O'BRIEN, CNN ANCHOR: All right, let's shift gear and talk about another utility. We're turning from telephone troubles to power problems, and I'm not referring to the political power struggle. We're talking electricity.

California is facing a serious power crisis.

CNN's Greg LaMotte explains why.

(BEGIN VIDEOTAPE)

GREG LAMOTTE, CNN CORRESPONDENT (voice-over): The power crunch in California and the Pacific Northwest could be the perfect storm. All the elements for crisis seem to be merging simultaneously. For now, it appears there's little consumers can do to stop the rising swells.

DAVID FREEMAN, LOS ANGELES DEPARTMENT OF WATER AND POWER: What we have here is something far more serious than the energy crisis of the early '70s.

LAMOTTE: California deregulated its utility industry in 1998, believing the free market would help control rising energy costs. But a combination of short supplies, high demand, and no new major power plants in the last 10 years have left the state reeling from out-of- control energy prices.

JOHN BRYSON, CEO, EDISON ELECTRIC: We were paying until May of this year on the order of 3 to 4 cents a kilowatt hour for power today. We're paying 25 cents a kilowatt hour for power.

LAMOTTE: It all starts here each morning at the California Power Exchange, where utilities buy electricity from the generators on the spot market. And over the past couple of weeks, that market has produced price spikes as high as 1,000 percent. State law prohibits most utilities from passing those costs on to consumers at least until 2002.

California's governor wanted the federal government to impose price caps. Instead, Friday the Federal Energy Regulatory Commission said it hopes to ease the crisis by getting buyers away from the spot market and into long-term contracts for power.

Meantime, utilities and consumer groups charge the generators are holding back electricity to drive up the price they charge utilities. Fact is, some generators had to power down to meet clean air laws.

AARON THOMAS, AES PACIFIC: It's absurd, you know, on one angle we're getting sort of sued by the air district for running too much, and on the other end we're getting sued by consumers and other parties for saying we're not running and we're withholding.

LAMOTTE: The free market utilities, which now only buy and deliver power, say they're billions of dollars in debt.

SEN. DIANNE FEINSTEIN (D), CALIFORNIA: The price of power has risen astronomically on the spot market and may very well bankrupt two of California's major utilities.

LAMOTTE: Consumer groups say the utilities just want more money.

HARVEY ROSENFIELD, CONSUMER ADVOCATE: They're using the threat of bankruptcy to try to get either the federal government or the governor of California, Gray Davis, to issue a bailout. The bailout would force the rate-payers of the state to pay for the mistakes that these companies made in going to deregulation.

LAMOTTE: As it stands today, residents, already in a state of electric shock, may be facing the threat of rolling blackouts for years to come.

Greg LaMotte, CNN, Los Angeles.

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