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So far deregulation in California sucks,
  and guess who is to blame...

January 20, 2001

Wow whose stupid idea was deregulation? This past week we have had a few days of consecutive rolling blackouts in California, which makes it seem more like third world countries and former communist states than the so called golden state. Now I do not have to travel to interesting parts of the world to see the effects of poor resource management.

Since I was luck enough to have the foresight to switch to an alternative energy provider when this mess began last summer, then find out that the alternative energy provider I selected itself become a victim of ill conceived deregulation (see my December 27, 2000 entry), I think I have a rough idea of what went wrong with so called deregulation. BTW this past week another alternative energy provider Utility.Com, a web energy provider pulls the plug on consumers.

The whole mess of deregulation started in the mid 1990’s when Pete Wilson (former San Diego mayor and governor) thought he had an issue that would make him stand out, that issue of course was utility deregulation. I guess the model he was trying to follow was based on observation of the long distance telephone market, where ATT was taken down a few notches by maverick up starts such as MCI and Sprint.

After an unsuccessful presidential bid by Pete Wilson, another California politician Assemblyman Steve Peace in 1996 decided to make a name for himself and gathered the big industrial customers, utilities, and various interest groups together and somehow managed to get the legislature to unanimously pass an electricity restructuring bill.

The reality was at the time, California had one of the highest energy rates in the nation, and it was thought that so called deregulation would lower energy bills. For a few years it worked, because it forced local utilities to sell off their power generation units under the restructuring bill, and the proceeds of the sales were used to lower rates for all utility customers.

Because local utilities were forced to sell off generation plants, they often sold those units to a parent company which seems to me nothing more than a busy work book keeping exercise IMHO. BTW Steve Peace after the electricity restructuring bill was signed, received a shit load of campaign funds from power companies (just a lucky coincidence).

Another interesting provision of the restructuring bill includes, preventing utilities from signing up long term contracts with power providers. The logic behind this provision was to prevent a utility who just sold a power generation plant to a parent company from signing a long term contract with the parent company to provide a major portion of its power to a utility.

In the never ending blame game played by politicians, utilities and interest groups is the undeniable fact that in 1996 the economy was just about to begin a great expansion (as measured by the spectacular climb in the stock market). Prior to 1996, population growth was down and so too was consumption. When the economy started booming in California, population and consumption went up. For many years there were no major power plants built, because of the expense, long lead time and resistance of residence in affected areas.

Just one more item needs to be considered in looking at why, California is facing major spikes in the electrical market. Since natural gas is the fuel of choice of many generators, a shortage of natural gas (due to higher demand for heating because of a colder winter across much of the country) has a direct effect on power production costs. In the west natural gas the fuel of choice because it cleaner burning that heavy crude oil and coal. If you think that using coal is a viable alternative to producing power, then you may want to consider the public health consequences (I have seen places around the world that burn so called dirty fuels and trust me it is not a pretty sight).

In summary, we in California have a problem because the demand of power is way up, the supply has not grown accordingly and a poorly thought out restructuring bill makes it difficult for the utilities to have long term fixed price sources of power. The problem with the power supply and demand imbalance in the golden state, can and will have harmful effects on the California economy and quite likely will drag down the economy of rest of country.

March 23, 2001

Deregulation Sucks! In San Diego this past week we had scattered blackouts. And I still have not heard when I am suppose to be switched to Green Mountain (I signed up the middle of last December).

We now know that many big businesses wanted deregulation thinking they would have the opportunity to shop around for the lowest rates. Utilities wanted deregulation because they would be freed from being responsible for producing power and could concentrate on being the middle man (who could charge a service fee for delivering power to the consumer). Power produces thought deregulation was good, because in theory it would lower the barriers of entry since they only had to manufacture power and would let the utilities build the transmission infrastructure. Some consumers thought it was good because promised lower costs and a choice to select a “Greener” methods of power production.

There are always two (or more) sides of a story and it seems when big business interests are involved, good basic science is often skewed by political donations resulting is whacked policy made by less than knowledgeable elected officials.

There is an urban myth reported in such rags as The Wall Street Journal that, “The internet today consumes about 8 percent of US electric output” ... and ... “30 to 50 percent of electricity consumed in the US, within a decade, will be from the Internet.” This quote is from a May 1999 report by analyst Mark Mills prepared for a coal industry lobbying group seeking a mandate to get support build more power plants powered by “big surprise” coal. If you are interested researches at Lawrence Berkley National Lab who looked at the study paint a less dramatic picture of Internet power usage. “In the aggregate, these data centers don’t use as much power as people think they use,” said Berkeley Lab researcher Jonathan Koomey, whose research has determined that at the very upper limit, data centers use 0.15 to 0.2 percent of U.S. energy.

Basically I think big political donations bias policies. “In 1999 and the first half of 2000, PG&E gave $1.7 million in contributions, including $112,258 to Gov. Gray Davis. Edison International handed out $1.8 million, including giving $105,000 to the governor, according to state records.” For the record I think the McCain bill is long over due and I strongly believe in reform organizations such as “Common Cause.”

IMHO big business interests (that includes big power consumers, utilities and power produces) are the primary cause of the problem here in California because they blew so much sunshine up the asses of short sighted politicians in the form of campaign funds. How else can one explain the legislature unanimously passing 1996 California electricity restructuring bill (in all fairness there is a chance of a unanimously vote, but it is not all that probable and I admit that I am somewhat of a cynic when it comes to matters of politics, big business interests, etc.).

One bit of info that I found interesting was a blurb in "Planet, the Sierra Club Activist Resource" which posed the question Who Blocked the Power Plants? (Hint: Not the Usual Suspects). Basically the paper stated:

Since 1997, 21 power plants have been proposed for licensing in California. Of these 21 plants, 12 - more than half - have faced opposition from a single source. ... Competing power generators have been the major opponents of new power plants in California since deregulation. The Sierra Club has not opposed a single new power plant since deregulation, because the new plants being proposed were cleaner and more efficient, than the old ones.

“Owe the bank one hundred dollars, and the bank owns you. Owe a bank a billion dollars and you own the bank” is an old adage that is appropriate for the current situation given that “California Citizens” cannot afford to let utilities go belly because they owe so much money and provide a necessary service.

There is no magic bullet that will solve the big phuck up that has taken place as a result of the 1996 California electricity restructuring bill. The solution in California is supply and demand need to reach a point of equilibrium and that will involve painful concessions of all parties involved: consumers, utility companies (their share holders), politicians and various interest groups.

There is the very real possibility of bankruptcy filings of Pacific Gas and Electric Co. and Southern California Edison Co., who say they have no way to raise money to pay huge bills due early next month. Filing for bankruptcy would allow the utilities to protect their assets from creditors. The bankruptcies would rank among the biggest business failures in U.S. history.

The problem with a Pacific Gas and Electric Co. or Southern California Edison Co. bankruptcy is in prior instances when a utility filed for bankruptcy (such as Tucson Electric in the the early 1990s) they owned the means of production and the delivery system. So the big question is what good is protecting a delivery system if you have nothing to deliver.

With talk of the major utilities wanting a bail out, I have to ask the question what happened to the money. Under deregulation utilities transfer title of the power plants to a parent company so in effect some portion of the billions of dollars owed may represent money a transfer of money from one division (the utility) to another division (the power generation) within a single company. And what price should consumers pay for poor planning by the major utilities? For example Edison did not build necessary transmission lines from sites of independent power producers such as wind farm generators and in prior years paid some wind operators not to produce power.

Meanwhile the 10 billion dollar budget surplus of California for the last fiscal year, is being quickly used up to buy power on the spot market.

April 20, 2001

10 lines of computer code that took 3 years to write at the Sandia National Laboratories, should make photovoltaics (PV) an option for more people and make it simpler for homeowners to sell excess power. PV have been used in the past but utility companies have been reluctant to connect PV to the grid because of the potential safety hazard (i.e. in a power outage the PV system has to shut down or it could zap an unsuspecting worker). The code certified by Underwriters Laboratories is added to the PV system's inverter (a devise that converts DC to AC) and continually tests the voltage frequency of the incoming power and shuts off the system if there is a power interruption.

December 31, 2001

As the year ends, I have to look back on the year 2001 in awe. The events of 9/11 do not chance the fact that we in California still have an energy/fiscal crisis to deal with.

Two years ago the state had a $12 billion budget surplus, now we have a $12-plus billion deficit. The deficit was caused in part by the governor, first on his own and later with the blessing of the Legislature to negotiate some $43 billion in long-term power contracts (it seems California bought too much power, and now has resorted to selling the excess power on the open market at a big loss). To add insult to injury, we Californians pay about $250,000 a day in interest on the six billion dollars borrowed from the general fund to pay for power bought by the state for bankrupt utilities (ya know I could have a pretty good time with $250,000). And as far as I have read the short sighted elected officials still don’t know what to do about the balanced accounts.

Enron Corp. (one of the major players who shafted California) enters 2002 with hopes of emerging from bankruptcy with a viable trading business, once the source of 90 percent of its revenues. Investor confidence and trading partners evaporated as Enron stock nose-dived (it started on Oct. 16, when Enron acknowledged $618 million in third-quarter losses, took a $1 billion charge for losses on bad investments and cut $1.2 billion in shareholders’ equity).

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