Charles Feldman: The California Power Crisis

Charles Feldman is a CNN correspondent based in the network's Los Angeles Bureau.

CNN Moderator: What are California's short-term plans to address this energy crisis?

Charles Feldman: Well, the plans are many. Foremost among them is for the state to become the primary buyer of electricity from mostly out of state power generators. The reason for this is that the state's two largest privately owned utilities are collectively some twelve billions dollars in debt now, and out of state generators are reluctant to sell electricity to the utilities directly. So one plan, and the key one at the moment, is for the state to become the buyer of electricity, because the state has a good credit rating; and then sell that electricity back to the utilities which in turn would distribute it to customers.

Now, as part of that plan, the state conducted an internet auction to determine how much out of state power generators would be willing to accept or charge for their electricity for long term contracts. California Gray Davis, a Democrat, has said that he was pleased with the offers that were made, that, while the prices are higher than what the state says it is willing to spend, they are lower than what some people feared. So it looks as if that sort of plan, the state buying power. Prices for long-term contracts set via an auction process is the most likely one to resolve this current energy shortage in the short-term.

In the long-term, state officials say there needs to be a greater emphasis on conservation throughout the state as well as the building of more power generating plants within the state. The second part goes to the issue of what to do with the two investor-owned utilities that are near insolvency: PG&E and Southern California Edison. The state legislature is currently discussing a plan whereby the state would issue bonds to help cover the debt of the two large utilities although the Governor and others say there needs to be something of value given up by the utilities as collateral for that plan to work.

Question from the chat room: Has this crisis had any lasting effects on the California economy yet?

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Charles Feldman: It is too early to tell whether there will be a lasting effect on the economy. California still enjoys a robust economy, and the disruptions thus far in electric service have been relatively limited and primarily confined to the northern part of the state. However, in recent days and weeks, some short-term economic effects on the power crisis. For example, there are companies throughout the state that, in exchange for lower electricity rates during non-crisis times, offered to voluntarily interrupt power deliver to them for brief periods during any power emergency. Those companies have been, to some degree, disrupted, because the chips in effect have been called in, and they have been asked to participate in a voluntary discontinuation of electric service. This has clearly an economic impact on those industries and the employees associated with those industries.

Question from the chat room: What is California doing to keep the high tech companies to stay without power?

Charles Feldman: I'm not aware of any specific effort or programs being made to retain hi-tech companies within California. In fact, as I mentioned previously, the bulk of the rolling blackouts thus far have been in the northern part of California, which, of course, is where our hi-tech industries are mostly based. And many of these industries in Silicon Valley, and elsewhere, are part of that voluntary plan I mentioned previously to discontinue electricity service for brief periods during an emergency. But I know of no blue print for ensuring that these companies don't defect to other states.

Question from the chat room: Why did it get to a crisis before there was action taken?

Charles Feldman: Well that is a very good question. And one that has not to the satisfaction of many people been answered. The conventional thinking among many politicians is simply that when deregulation came about in California a few years back the state was, at the time, in the midst of a recession and had plenty of power reserves. Since deregulation, the state has rebounded economically, and yet, no new major power plants have been constructed in a decade or so helping to produce a shortage of power. There were clues going back a few months that things were starting to go a stray with spot shortages and the rise of wholesale prices for electricity on the spot market. And there are critics of Governor Davis who say he was slow to recognize the early warning signs before things got out of hand. But it appears as if few people if any expected such a profound and painful crisis.

Question from the chat room: Has this kind of energy crisis happened in any other state that is deregulated? And if not, what have they done differently to avoid such crisis?

Charles Feldman: Well, to my knowledge, the situation in California is unique. Partly it is because some would argue California only had a half-hearted deregulation. By that I mean while utilities were forced to buy energy on daily spot markets where the price fluctuates based on supply and demand, the deregulation law prevented utilities from passing along any increase in their costs to their customers until at least 2002. And there are those who say that that was from the start an ill advised way to deregulate such an important industry. California also was, and is in the forefront of energy deregulation, so it may just be that some other states have not had enough time to fully see what the true affects both good and bad of deregulation are.

Question from the chat room: Is there much research going on into alternative energy sources for California: i.e., solar, geothermal, etc.

Charles Feldman: Well, California, again, has been in the forefront of that kind of alternative power generation. For example, California has a number of windmill farms generating electricity using the power of the wind. So there has been no shortage in this state, as far as I know, of that kind of alternative power supply source. But none of those systems have the generating capacity that the larger more conventional generating plants do.

Question from the chat room: How damaging have the California blackouts been to the political career of California governor Gray Davis?

Charles Feldman: Well, being Governor of the country's most populous state, Governor Davis, according to many analysts, is automatically on the short list to be a potential Democratic candidate in 2004. And some of those same analysts argue that how the Governor handles this power crisis will go a long way in determining whether he will be a serious contender for the White House four years down the road. The Governor currently enjoys a fairly high approval rating overall, according to recent polls. However, there have been some signs of erosion in at least one poll that I can think of. While the majority of respondents said they approved of the Governor's performance, over all, there was considerable dissatisfaction with the way that the Governor is handling the energy crisis. Having said that, it is important to remember that the rolling blackouts have not impacted some very large population centers in California that are Democratic strong holds with many voters such as Los Angeles. The reason for that is Los Angeles and some of those other cities have municipal power systems that were not deregulated, and so they have enough power, in some cases a surplus of power, and therefore, have not felt any real economic impact yet. From a political point of view analysts will tell you this is helping Governor Davis at least so far.

CNN Moderator: Are officials concerned that this power crisis will not be resolved by the summer?

Charles Feldman: Well, the summer, of course, is fraught with its own peril. California usually uses more power in the summer months because of air conditioning and things like that that are part and parcel to life in a warm climate. So, there is a concern that if this crisis is not resolved substantially by then that we may see more frequent and more extensive power outages. I stress that there is a more acute concern to mitigate this deregulation mess within the next two weeks because, according to the federal government, the current emergency decrees that have had the heavy effect of mandating the sale of electricity to California utilities by out-of-state generators will expire.

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

Charles Feldman: Good-bye, and I thank you all for all of your questions, and I look forward to chatting with you in the near future.

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Stage 3 alert to last through Friday
January 26, 2001