title: “Lights Out” ShowToc: true date: “2023-01-14” author: “Chad Zediker”
title: “Lights Out” ShowToc: true date: “2023-01-16” author: “Donna Bolt”
No, the United States. In what the California governor’s own spokesman has confessed is an embarrassment to “the wealthiest state in the richest nation on earth,” the electricity shortage is now spreading throughout the West. Amid warnings that the crisis could push America into recession, George W. Bush put Vice President Dick Cheney in charge of a blue-ribbon panel to come up with a national energy plan. They cast California as the latest in a series of shortages, from heating oil last winter to gasoline last summer, created by Bill Clinton’s “eight years of failure” to come up with an energy policy.
Bush made his agenda clear during the campaign: open new supply frontiers, whether by permitting oil exploration in the Alaskan wilderness, lowering barriers to natural-gas production in the Lower 48, or funding research on cleaner coal-fired electric plants. In a twist, Bush promoted this hunt for fossil fuel as crucial to the future of America’s high-tech New Economy, noting that 8 percent of all energy supplies now fuel Internet enterprises. Outages battering Silicon Valley are the perfect moment to press ahead this supply-side agenda. Addressing a conference of Western governors last Friday, Energy Secretary Spencer Abraham warned that the United States had not built a major new oil refinery or nuclear plant in decades. “The problem isn’t limited to California,” he said. “It’s a national problem. And it’s not an electricity problem, it’s an energy problem.”
The Bush administration is loath to speak of a national “crisis,” for fear of killing what’s left of consumer confidence. Rising layoffs had U.S. markets jittery late last week. Prices are at or near recent peaks for all major power supplies–oil, gas, natural gas and electricity–though it’s not clear it’s all Clinton’s fault. But this is clear. Copied worldwide for its largely successful deregulation of airlines and telecoms in the early 1990s, the United States later set the stage for disaster when it left the far more complex job of deregulating electricity markets in the hands of local “stakeholder democracies,” instead of experts, says Larry Makovich of Cambridge Energy Research Associates. “It’s a grand experiment that blew up in California, and it will blow up in other places, in different ways.”
Everywhere, the new energy rules were crafted by committees of politicians, businessmen, consumers and environmentalists, all working at cross-purposes. California’s results were worse than most. They gave utilities little incentive to build new plants, and none were built in the ’90s, leaving supplies tighter and tighter as the economy boomed. The new rules also gave consumers little incentive to conserve electricity under an unworkable system that fixed retail prices, but freed wholesale prices for utilities. It was a trap. When wholesale prices shot up by as much as 1,000 percent last summer, utilities couldn’t pass on the cost, and they are now more than $12 billion in debt. “California is a worst-case disaster,” says Carl Blumstein, associate director of the University of California Energy Institute. “But the same basic problem–weak or murky price signals–exists in every market in the country.”
California still teeters on the verge of blackouts. Power generators are selling electricity to California’s uncreditworthy utilities only under a Bush administration order that expires this week. And the state of California has stepped in to buy supplies, reversing the whole purpose of deregulation. Secretary of the Treasury Paul O’Neill recently panned the whole sorry episode as “lunacy.”
It’s likely to get crazier when demand rises in the hot summer months. U.S. Sen. Dianne Feinstein, Democrat of California, forecasts shortages of as much as 5,000 megawatts a day, 10 times worse than the recent blackouts that cut power to 2 million Californians. Businesses are getting fed up. The Miller Brewing plant in Irwindale normally runs round the clock, but has suffered 24 power interruptions since last summer. Miller has laid off some employees, and shifted some production to Dallas. “We thought, ‘This is California, this is high tech, this is cutting edge’,” says Victor Franco, community-affairs manager for Miller’s Irwindale plant. “But we’re experiencing Third World problems.”
The world’s sixth largest economy has been humbled. Beacons of California’s high-tech prowess, including Intel, have dimmed the lights in offices and factories. Workers call it “mood lighting.” Neighboring states grumble that if California utilities go bankrupt, banks will tighten credit to all utilities–making it more difficult to build new power plants.
Shortages are worst in northern California, which is separated from cheaper, more plentiful power in southern California by a 40-year-old bottleneck known as Path 15. For 80 miles, the main north-south electrical artery narrows from three lines to two–choking the peak flows. And peaks have risen sharply since deregulation freed power companies to export electricity out of local regions. “You’ve got many more facilities using the same network,” says Jeffrey Miller, regional transmission director for the California Independent System Operator, which controls the grid. “Path 15 is the most critical bottleneck, but there are others throughout the region.”
Since all Western states are hostage to the same wholesale market as California, tensions are rising. Gov. Gray Davis has blamed price spikes on “out-of-state speculators and profiteers,” which neighbors take as the height of ingratitude. They’ve been draining reservoirs to keep hydropower flowing to California and now face shortages of their own. Western governors regaled the conference in Oregon last week with horror stories: a small school in Cheyenne, Wyoming, had to fire teachers to pay the electric bill. Seattle office workers are wearing coats and gloves at their desks. And Energy Secretary Abraham rebuffed the governors’ request for a wholesale-price cap, saying that would make matters worse. To the Bush administration, the answer is not expert regulation, or dimming the lights. It is to pump more gas, build more power plants. Supply, supply, supply.
title: “Lights Out” ShowToc: true date: “2022-12-18” author: “Enrique Novoa”
That’s an understatement. The power crisis in California, where several million people endured two straight days last week of rolling blackouts, is creating all manner of mayhem–darkened traffic lights, stranded elevators and a shortage of flashlights. With the cost of the disruptions already reaching billions of dollars in lost sales, productivity and wages, many experts now fear that the woes of the nation’s largest state economy may spill over to the rest of the country. With so much at stake, California is playing the blame game full tilt, and who will ultimately bear the cost of this fiasco is still unclear. The Bush administration is keeping its distance, suggesting that the state is largely on its own. At confirmation hearings last week, Paul O’Neill, the new head of the Treasury, chastised the state for its misguided ideas about market economics and added that its deregulation effort was, in a word, “lunacy.’’ Life in California may get crazier, though, when demand for energy peaks in the hot summer months ahead.
For California businesses and their employees, last week was plenty crazy. The Miller Brewing plant in Irwindale typically runs 24/7, 365 days a year. But like the Fontana school district, it signed up years ago for discounted power in exchange for the risk of facing occasional power interruptions. It didn’t, however, sign up for the 24 interruptions it’s suffered since last summer. The plant has laid off some employees, and Miller has shifted some of its production for California beer-drinkers to its Dallas brewery. The disruptions last week cost the company about $600,000, but more importantly, Miller is souring on California as a place to do business. The state’s reputation and ability to attract new businesses may be suffering the most. “We thought, this is California, this is high-tech, this is cutting edge,’’ says Victor Franco, community-affairs manager for Miller’s Irwindale plant. “But we’re experiencing Third World problems.’’ Carl Guardino, president of the Silicon Valley Manufacturers Association, said that about 60 members reported that they lost power last week. High-tech companies want to stay in California, he added, “but if the power isn’t reliable, they will be forced to go elsewhere.’’ Craig Barrett, the CEO of Intel, sent an ominous letter to Sen. Dianne Feinstein saying that until the company has reliable, affordable power, it will build any new plants outside the state.
All that has economists wondering: if California sneezes, will the rest of the country catch a cold? The state is the world’s sixth largest economy and its concentration of high-tech industries has earned the Golden State a reputation as the engine that’s been powering the country’s business boom. Now that the engine is sputtering, many are worried about the broader impact of energy shortages at big-league companies like Intel, Cisco and Hewlett-Packard. “These companies do business nationwide, and interrupting power to them could conceivably filter through the entire economy,’’ says Bradford Cornell, an economist at UCLA. Gov. Gray Davis bristles at any suggestion that his state’s energy problems will weigh heavily on the country’s economy. “California will not drag anyone into recession,’’ he told NEWSWEEK. “It will outperform the rest of the nation.’'
For a state that is ever ready to cope with natural disasters, California has shown a remarkable blind spot for this man-made emergency, and many people still find it baffling. State officials were warned years ago by experts that their particular brand of deregulation wouldn’t work after they guaranteed lower electric bills and opened up the market to competition. Because the state put a cap on retail rates, many power distributors decided not to enter the market, concerned that they’d have a hard time making a profit. Meanwhile, thanks to the booming economy and the growth of electricity-hungry tech companies, demand soared, and since no new major power plants were built, supply didn’t keep up. That drove the price of wholesale electricity through the ozone layer, leaving the middlemen–big utilities–selling electricity to retail customers for a fraction of the exorbitant prices they were paying. Saddled with billions in debt, the utilities were pushed to the brink of bankruptcy last week. On Friday, Davis committed $850 million to keep electricity flowing. But that’s just a stopgap measure and the scramble for solutions continues. The state’s handling of the crisis thus far isn’t inspiring much confidence. “It’s Keystone Cops,’’ says Harry Snyder, who follows electric deregulation for the West Coast office of Consumers Union.
In many ways, this energy shortage is proving to be more disruptive than the gas shortage of the 1970s because the rolling blackouts have blindsided so many people and businesses. Shoppers suddenly had to rely on store clerks with flashlights to escort them down aisles, self-serve laundries shut down in midcycle and restaurants rejiggered menus between courses. The blackouts handed a challenge on Thursday to the San Francisco Zoo, where some workers were moving 150 rare chichlid fish into a temporary pool while their regular tank was being renovated. Chichlids need warm water to survive and so dozens of zookeepers scrambled to fill insulated containers with water and carefully monitor each fish. The commotion was lost on the zoo’s seven gorillas, whose daily routine was disrupted when the hydraulic doors wouldn’t open to free them for their romp outside their cage.
The problems in California have triggered endless rounds of debate and finger-pointing, with blame being heaped on everyone and everything from Davis (sidebar) to Mother Nature (lack of rain in the West means a shortage of water to generate hydroelectric power). California’s strict environmental laws, which some say discourage the construction of new power plants, are also being held accountable as are power generators, the companies which are suspected by many of intentionally withholding power supply to drive up wholesale prices. Everyone seems to agree, though, that there are no easy answers, and that solutions are likely to come slowly and expensively. Experts say the wild swings in the price of wholesale electricity need to be stabilized with new long-term contracts between the middlemen utilities and the power generators. Soaring demand from businesses might also drop if a new pricing system is introduced to give them more incentive to use less energy during times of peak demand or tight supplies. President Bush suggested last week that California might relax some of its regulations to bring new plants online faster to boost generating capacity, but elecricity rates will almost certainly rise.
California’s awkward dance with deregulation is likely to get worse, and more costly, before things improve. The warm summer months, when demand can surge by as much as a third, will put a far greater strain on the already taxed system. And with so many lives disrupted and threatened in countless ways–home health-care equipment cutting out, for example–a rash of lawsuits is expected. The city of San Francisco has already filed suit against a dozen energy companies, saying they manipulated supplies to push up prices. “It’s going to generate a mass of litigation,’’ says Cornell, the UCLA economist. “The costs of that would be immense.’’ The buck will eventually stop at the doorsteps of California taxpayers, residents and businesses, as well as investors in the California utilities. Unless the crisis is brought under control soon, the rest of the country may start paying for California’s mistakes, too.
