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Morning News

Most States Can Learn From California's Energy Problems

Aired February 9, 2001 - 9:35 a.m. ET

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

DARYN KAGAN, CNN ANCHOR: Out to California, where that power- strapped state will still be able to keep the lights on, at least for a little bit while longer. A federal judge there has ordered several out-of-state generators to keep selling electricity to California for another week.

But as CNN's Rusty Dornin now reports, consumers still are going to face astronomical power bills.

(BEGIN VIDEOTAPE)

RUSTY DORNIN, CNN CORRESPONDENT (voice-over): At the Java House (ph) in San Francisco, owner Phillip Papadopoulos raised his prices after his power bill went from $450 dollars to $1,700 a month. Papadopoulos says that's no guarantee his lights will stay on.

In order to keep the lights on, a federal court judge ordered three out-of-state generators to keep pumping power to California. Papadopoulos wasn't impressed.

PHILLIP PAPADOPOULOS, RESTAURANT OWNER: Too little, too late. And again, we pay a ransom to the utility companies, that's what it amounts to; either you pay us, or we turn it off.

DORNIN: There were fears that power generators would turn off the electricity to California when a federal order requiring generators to keep giving power to the state's nearly bankrupt utilities expired. The state's power grid, the ISO, took the out-of- state generators to court. A federal judge in Sacramento declared the crisis in California was catastrophic and ordered the three generators to keep supplying power through the transmission lines, at least until February 16.

Generators say they're happy to supply power, as long as the buyers are creditworthy.

JOHN STOUT, RELIANT ENERGY: All of us have one common goal, and that is to keep the lights on. But Reliant wants to make sure that we get paid when we do provide the power.

DORNIN: The state claims the power generators are required under federal law to supply the state with energy when it's critical.

CHARLES ROBINSON, ISO ATTORNEY: The terms of the tariff bottom line: We call you up in an emergency situation, you generate.

DORNIN: Meantime, Governor Gray Davis unveiled aggressive plans to build power plants over the next three years. The first, which could supply 5 million homes with electricity, will be on-line by July.

GOV. GRAY DAVIS (D), CALIFORNIA: They will help keep the lights on during the peak periods this summer and they will reduce our dependence on out-of-state generation.

DORNIN: But for now, the state must depend on those generators; the court order has bought California another week of energy.

Rusty Dornin, CNN, San Francisco.

(END VIDEOTAPE)

LEON HARRIS, CNN ANCHOR: The power crisis in California has hurt other Western states, but should consumers elsewhere be worried right now?

Well, Adam Goldberg joins us from Washington to talk about the possible pitfalls of deregulation in other parts of the country. He is a policy analyst for Consumers Union.

We thank you for your time this morning. Well...

ADAM GOLDBERG, CONSUMERS UNION: Thank you for having me.

HARRIS: ... should the rest of the country right now be worried about what's happening in California? Many folks who live east of the Mississippi may not think they have anything to be concerned about here.

GOLDBERG: Well, really, this isn't a California problem. If you look at the California crisis, it's a West Coast crisis, with many states in the Pacific Northwest starting to feel some of the pinch because they have to draw down on some of their hydroelectric supplies. So they're going to have some problems this summer when the demand starts to the peak.

But it's also a problem in other states. If you look at, for instance, Pennsylvania, where they've deregulated just today; one of the utilities is going to be asking for a rate increase. And down in Texas where they haven't even opened up the market yet, the utilities are saying that they're going to have to raise the rate cap there or they're going to be suffering problems like California has.

So it really isn't an isolated incident.

HARRIS: Well, you know, part of the problem in California is that the companies there -- the power companies -- have to buy of what's been called the spot market; it's, you know, the price -- I guess the market where the prices for service are the highest, and they have to pass on the power to the consumer, but not necessarily the cost of that. Why is it that that law can't be changed? Why is it that they can't change that rule and make it more amenable to the power companies?

GOLDBERG: Well, I think they really do have to do that in California. California was the first state to the deregulate, so we're all starting to learn some of the lessons about deregulation from California. And that's a mistake that other states aren't making; but that clearly is one of the major, major problems in California that needs to be addressed.

HARRIS: Well, there's also the risk that those California power companies may go into bankruptcy. As a matter of fact, this morning there was a report there that California state auditors saying that, if the companies do go bankrupt, so be it; that's, basically, the price of doing business. If that were to happen, what, then, would be the impact on the consumer?

GOLDBERG: Well, I think that, clearly, you need to generate electricity for the consumers. So I'm not sure that the state of California would allow the utilities to go bankrupt. In fact, we see that California is working on a bail-out plan.

But if they were to go bankrupt, the state of California would find a way to provide power, whether it's running those facilities themselves, bringing in other producers and suppliers. But the bottom line is is the lights are not going to go out in California on a long- term basis because of the bankruptcy with the utilities there.

HARRIS: Well, the utilities have been working with the politicians and with the courts -- are trying to solve this matter. It still hasn't been hashed out; at this point we're still on a day- to-day basis here. At some point, does the federal government have to step in to provide the final solution, or what?

GOLDBERG: Well, in fact, we think that the federal government has to step in and should step in right now, and aggressively. One of the major problems that we're seeing in California is a transmission problem. The transmission lines are really the highway of commerce for electricity. And just like our interstate highway system, they have to be open and adequate to support the traffic that needs to use it.

And that's not happening right now; and any time that you have, for instance, a pot hole on one of the interstate highways, it needs to be filled. And the federal government needs to step in and take care of the bottlenecks that we now see in the transmission system. Unfortunately, being in an interstate system, this isn't something that one state can fix. We really have to do this on the federal level to ensure that power is flowing.

HARRIS: So the end is not in sight as yet, then?

GOLDBERG: No, it is not.

HARRIS: Adam Goldberg, Consumers Union, thanks much; we appreciate it.

GOLDBERG: Thank you.

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