California's energy `situation' sees bills soaring

The rest of the US loves to bash California, always has

The rest of the US loves to bash California, always has. Maybe it's purely envy - while the rest of the nation deals with freezing temperatures and slushy snowstorms, the sun still shines here. Maybe that is why there always seems to be a gleeful response when California gets hit with its usual calamities: the fire season in the autumn, which can be counted on to destroy hundreds of homes near forested areas; the floods during the rainy season, which typically cause a few mountains to come tumbling down; even the occasional earthquake, which rattles nerves as well as cities.

But the power crisis - a few political stalwarts still insist on calling it a "situation" - is one that has unleashed an unusual level of finger-pointing.

The sense seems to be, among neighbouring states and the federal government, that California's electricity crisis is the results of all those hedonistic Angelenos lounging too long in their backyard hot-tubs, obviously to the kilowatt hours they are needlessly consuming.

Everyone has weighed in with opinions on who to blame: "California has done nothing to curb demand and nothing to help supply," said Chuck Watson, chief of a Texas energy company called Dynegy. Others say that "environmental extremism" is responsible. "As they suffer the consequences of their own feckless policies, political leaders in California blame power companies, deregulation and everyone but themselves," lectures Texas Senator Phil Gramm in the Los Angeles Times.

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It was "environmentalism" that prevented California from building needed new power plants in the 1990s, argue people like Mr Gramm, and the rolling blackouts now plaguing the state are exactly what Californians deserve. Even the rise in natural gas prices draws little sympathy.

Tell that to Dorothy Moore (89), a pensioner living in Sun City, who cries as she looks at her utility bills stamped "overdue".

"I sent them what I could last month," she said. "But then I got another bill and I couldn't pay that amount either. Now its just piling up. It's $106. I'm worried if I don't pay it all, they'll turn my heat off."

Natural gas prices have quadrupled in the last year. A monthly bill that once averaged $32 in California now hits $80.

But it is the electricity crisis that is drawing more attention, especially because it is threatening the California economy, which as a state is the sixth largest economy in the world.

The state deregulated electricity in 1996. It was supposed to be a good idea, and it was supposed to lower prices as the state's two utility companies sold their power plants to private companies. Competition would be good for the consumer was the argument.

Initially, it was, as residential consumers got an immediate 10 per cent rate reduction. But in May, the power suppliers who sell electricity to the two utility companies dramatically raised their wholesale prices. The price of one megawatt-hour of electricity went from $30 in early May to $146 in June. At peak times, some rates hit $1,000.

The flaw in California's deregulation scheme was that it did not provide for a "power marketplace" like other deregulated states did. The utilities had no choice but to pay the inflated prices offered by the limited selection of providers. Without the ability to pass those costs along to consumers, they ended up with a shortfall of between $6 and $11 billion, depending on whose doing the calculating.

The toll has been high. Refrigerators have been turned off, lights have been dimmed to near darkness in stores and shopping malls, and consumers are struggling to figure out actually how to save electricity. The Silicon Valley offices of Apple Computer and Hewlett Packard even went dark. Said Lourenco Goncalves, president of California Steel Industries, a steel-mill operator in Fontana, speaking to Fortune magazine: "We were shut down once in 15 years and then 18 times in 2000. They give us 15 minutes to shut down all our equipment, and then we wait for them to release us again. We cannot run a business like this." This week, the legislature passed a $10 billion bond measure aimed at stabilising the power market. The bonds will give state government the ability to negotiate contracts with suppliers, and rates will inevitably rise. Meanwhile, construction of power plants is planned.

The Governor of California, Mr Gray Davis, who has watched his political fortunes tumble with this crisis, is struggling to find long-term solutions, but his options are limited. What President Putin of Russia did this week must seem quite attractive to Mr Davis: Mr Putin sacked Russia's Energy Minister and forced the governor of the far east region to resign because of their failure to supply power to areas in the Far East and Siberia. If only Mr Davis had someone to fire.