Charles Feldman: Power Crisis -- real or imagined?

Charles Feldman

Charles Feldman is a general assignment correspondent for CNN, based in the network's Los Angeles bureau.

CNN Moderator: Welcome to CNN.com, Charles Feldman.

Charles Feldman: Hello, and I'm eager to answer any questions that anyone might have regarding this very important power crisis story developing in the state of California.

CNN Moderator: The California Public Utilities Commission has unanimously approved an emergency rate hike. What is this expected to accomplish?

Charles Feldman: Well, let me back up a bit. The two major investor-owned utility companies wanted a rate increase of at least 30 percent, at least Southern California Edison wanted that initially, in order to head off what they called the potential for bankruptcy. So, the increases that were approved today fall far short of the amount that the utility companies said they needed.

So, on the one hand, by being able to pass on some of their costs for buying electricity on the spot market to customers, will help alleviate some of the fiscal damage that's already been inflicted on the utility companies. However, considering that the amounts fall far short of what they were looking for, it is unclear at this time whether or not they will view this as a Band-Aid when a cast and splint are what's needed.

Question from Zif: What is a "spot market'?

Charles Feldman: There are two ways, probably more than two, but two main ways in which a commodity (and electricity is a commodity) can be purchased. One is through long term contracts. In other words, Company A agrees to buy from Company B electricity at a set price for a set amount of time, six months, a year, two years, whatever. If you don't have that sort of long-term agreement, the other way is you buy electricity at whatever the price goes for on any given day, what is known as the "spot market."

CNN Moderator: Was this energy crisis foreseen, but the warning ignored, or is this situation unanticipated?

MESSAGE BOARD Power crisis

OTHER TRANSCRIPTS Bob Tippee on the power crisis and what it means for consumers Greg LaMotte: National Concern about the Power Crisis

IN-DEPTH SPEACIALS Power Crisis Background The California power quagmire What it means to the rest of us Deregulating California's electric utilities U.S. power generation Video Archive

STATISTICS Deregulation map Power generation fuel sources Nationwide residential gas prices Global electricity consumption

VIDEO CNN's Greg LaMotte hosted a live Webcast from a California power plant Thursday morning. Watch his tour and interview Play video (QuickTime, Real or Windows Media) CNN's Greg Lefevre reports Californians are facing stiff electric utility price hikes due to deregulation Play video (QuickTime, Real or Windows Media)

Charles Feldman: There are a handful of consumer advocates who have long maintained that deregulation of the energy industry was doomed to failure. But, for the most part, the conventional wisdom in California back in 1996, when deregulation was signed into effect, was that this would be a benefit to customers, because in '96 electric supply was plentiful.

The feeling was that by increasing competition, prices would go down in the marketplace, more than they would in a regulated market. The feeling was everyone would be better off. Most people, though, in the state did not foresee such a crisis emerging until it was upon them.

CNN Moderator: The U.S. Justice Department is being asked to launch an investigation into price gouging. Since a new administration will be in office after January 20th, how likely are we to see an investigation undertaken?

Charles Feldman: Hard to say. U.S. Senator Barbara Boxer from California, along with a state senate leader, has asked U.S. Attorney General Janet Reno to look into whether or not price gouging, which would be illegal, is occurring. To my knowledge, they have yet to get an answer from the Attorney General or the Department of Justice.

It is certainly true that whenever there is a change of administration in Washington that it often has bearing upon whether or not a particular investigation will be pursued. So, it is not known yet whether in the waning days of her administration, Reno will decide to go ahead with an investigation, or whether she'll prefer to wait until her successor takes office, leaving it to that person to decide.

CNN Moderator: What kind of assistance can Governor Gray Davis expect from the Bush administration in holding down energy costs?

Charles Feldman: I talked with the governor about that last week, and he was aware, of course, that California was very much in the Gore camp during this past election, and he was aware, of course, as a politician, that George W. Bush is cognizant of that. But, the governor told me that he felt confident that Bush understood the predicament of California. He said he had discussed the crisis with Bush and felt that since Bush was a fellow governor of a large state, he understood what the needs of California are.

Having said that, there's only a limited amount that any president can do to help the situation here in California. Certainly, many in this state are hoping that the federal government will impose a regional price cap, which would, they think, keep the wholesale prices low. To what degree any president controls that is questionable.

Question from mikeg: How much of the crisis can be attributed to California’s failure to build new plants?

Charles Feldman: That depends upon whom you talk to. If you talk to some of the wholesalers -- the power generating companies that now sell electricity on the wholesale market to the utility companies in California -- they would argue that there is an acute need for more power plants in California, because the population of the state continues to grow, and along with it, the demand for electricity.

However, if you talk to some of the utility companies, they contend that's not really the major problem. They say, yes, it would be desirable in the years ahead to have more generating capacity, but, they say, that is not the reason for the crisis now.

They say the real reason for the crisis is simply that deregulation came to California. It, on the one hand, forced utilities to sell most of their generating plants to private, independent companies. That, in turn, forced them to buy back electric power on a very volatile spot market, which fluctuates daily. And, most significantly, the utilities argue, the deregulation also put a freeze until 2002 on the ability of utility companies to pass on any higher costs in the wholesale purchase of electricity to consumers at the retail level.

Question from Jon: I live in Los Angeles and am served by the DWP (Department of Water and Power), which anticipates a rate reduction. What is the reason for the disparity?

Charles Feldman: That's a good question. When the deregulation took effect, it initially exempted from this experiment those utilities owned by municipalities. In Los Angeles, the DWP is a municipally-owned and run utility. There is no energy shortage in the city of Los Angeles, in large measure, because the municipal utilities such as DWP were not required to sell their generating plants, and so were not required to buy power back at the wholesale level. This allows these utilities to keep prices low.

CNN Moderator: Thank you for joining us today, Charles Feldman.

Charles Feldman: Goodbye to all of you and thank you all for your insightful questions.

Charles Feldman joined the chat room via telephone from Los Angeles and CNN.com provided a typist. The above is an edited transcript of the interview on Thursday, January 4, 2001.

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