Greg Lefevre: No single solution for California power crisis

Greg Lefevre

CNN San Francisco Bureau Chief Greg Lefevre looks at what led to the price hikes on electricity in California and what could be done to solve the power crisis in the state.

Q: Why call the rate increases a surcharge?

LEFEVRE: The California Public Utilities Commission is calling it a surcharge because that is the simplest way to instantly raise rates without affecting the various mathematical formulas that go into determining rates. Also, because it is a surcharge, PUC can raise it, lower it or dump it virtually at will.

Q: Who is affected?

LEFEVRE: Residents will pay about 9 percent more. In San Francisco, that means a consumer's average (monthly) electric bill of $54 dollars will jump to almost $59. Small businesses get a break with only a 7 percent jump. But large industrial customers will have to pay 15 percent more because their per-kilowatt rate is already lower than the others are.

Q: Why do big companies pay less?

LEFEVRE: Large industrial customers usually agree to accept an occasional blackout or brownout in times of extremely high usage, such as cold winter mornings or hot summer afternoons, in return for lower basic electrical rates.

Some companies are finding out that the number of blackouts now is many times per year more than it used to be. As a result, some companies are considering sucking it up and paying the higher basic rate because in these still good economic times, shutting down your plant for an afternoon or day bears too much of an economic cost.

Q: Is the surcharge a fix or a repair?

LEFEVRE: It's less than a Band-Aid. The utilities had sought an increase four times larger for the year 2001 and had complained that even that large an increase might leave them bankrupt if the wholesale cost of electricity doesn't come down very much, very soon.

Q: How did the PUC arrive at the increase figure?

LEFEVRE: It is believed that the PUC calculated how much money the utilities will need in the next 90 days to stave off the financial ruin that the utilities have predicted. The PUC has still not formally accepted the accounting figures offered by the utilities as their rationale for the rate increase.

Q: Why are rates so high?

LEFEVRE: High demand and a tightening of supply. The California economy now requires more than 10 percent more electricity than just one year ago, and several times more than it required 10 years ago.

However, in those 10 years, California has added no additional electrical power generation, relying instead on importing electricity from neighboring states. Those electricity rates used to be regulated; now they are not. For example Pacific Gas and Electric Co. said it must pay 15 to 40 cents per kilowatt-hour of electricity. However, under deregulation, it is subject to a price freeze and can only charge 5 cents for delivering power to homes and businesses. SoCal is subject to similar rules. Together, the two companies say that they have lost $9 billion in the past year because they have paid more for electricity than they are able to charge for it.

Q: Whose fault is it?

LEFEVRE: It's everybody's fault. Consumers have said they are reluctant to conserve electricity because they feel they are being gouged and that the "shortage" is not genuine.

Utilities urged this deregulation plan on the California legislature four years ago, banking on ready supplies of competitively priced electricity.

Citizen groups in California have fairly constantly opposed construction of new power plants in the state for fear that noise, pollution and the sheer mass of power plants would depress quality of life and property values.

The legislature, until recently, has taken a hands off approach to energy management in California, in part, because the warnings of an energy crisis were, until last summer, just that -- warnings.

Q: What can fix the problem?

LEFEVRE: Experts agree no single solution will fix the problem. One short-term help would be to reduce electric use by more efficient use. The next thing would be the not-so-quick construction of so-called "peaker" power plants that supply extra electricity during peak use times -- such as cold winter mornings or hot summer afternoons -- that would switch on only during short periods of extremely high demand.

California orders audit of 2 major utilities
December 21, 2000
California guaranteed power for another week
December 20, 2000
Federal commission could act today on Western power crunch
December 15, 2000

US Securities and Exchange Commission
Pacific Gas and Electric Co.
Edison at Home
California Public Utilities Commission

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.