Please note marked increase in Chron's quality of reporting when it ain't
Lazarus doing the reporting. This was the lead, front page story in the
Chron. Note Abraham's quote in p.#3 re: "must increase supply or decrease
demand." I've heard that somewhere before.

Best,
Jeff

Energy Boss Says State Summer Blackouts 'Appear Inevitable'
Carolyn Lochhead, Chronicle Washington Bureau
Friday, March 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/2001/03/16/MN20
0965.DTL
Washington -- The Bush administration warned yesterday that blackouts "appear
inevitable" in California this summer, but it firmly rebuffed a deal from
Sen. Dianne Feinstein that would force the state to lift its rate freeze on
consumers in exchange for federal controls on wholesale prices.
Energy Secretary Spencer Abraham insisted that price controls would make
shortages worse by reducing power sales into the state. The administration's
top priority is to prevent blackouts, he said.
"Let me make one point clear," Abraham told the Senate Energy and Natural
Resources Committee. "Any action we take must either help increase supply or
reduce demand. . . . Price caps will not increase supply or reduce demand. In
fact, in our view, they will seriously aggravate the supply crisis."
Abraham said electricity shortages in California "will get worse, and
blackouts this summer appear inevitable." He cited projections of anywhere
from 20 to 200 hours of rolling outages this summer.
"I'm not saying that people in California don't want lower energy costs," he
said. "But I know for sure they don't want to be sitting this summer without
electricity at all. And our goal is to try to avoid that as the primary
public interest responsibility of this administration."
Feinstein became the first leading state Democrat to break with Gov. Gray
Davis in calling for an end to the rate freeze that has kept electricity
prices low for California consumers, even as soaring wholesale costs have
driven the state's investor-owned utilities to bankruptcy and now are
draining the state's budget surplus.
But Feinstein insisted that the federal government must simultaneously force
down wholesale prices until ample new power plants come online.
Feinstein said higher consumer rates would encourage conservation, saying
that if people just turned off their computers at night, they would save 7
percent of the state's electricity supply.
She also said the state, which now is buying electricity for the utilities,
has already run through $2.7 billion and could spend $10 billion on
electricity this year.
"That is gone," Feinstein said. "It doesn't buy a school. It doesn't repair a
road. It doesn't build the water system many of us believe the state needs."
The offer came as a compromise with Oregon Republican Sen. Gordon Smith, who
warned that an "economic and environmental catastrophe" awaits the Western
states this summer when electricity demand is expected to soar while a
drought in the Northwest constricts the supply of hydroelectric power.
Smith's move to embrace price controls, which he had earlier rejected,
reflected sharply intensifying political pressure on the Bush administration
to intervene in the electricity market, as Western officials complained
bitterly yesterday that rising energy prices are forcing layoffs and now
threaten the region's economy.
LESSONS OF SUPPLY, DEMAND
"I'm afraid this summer we're going to be in the middle of a dry lakebed
explaining to very angry farmers and homeowners and former factory workers
the lessons of supply and demand," said Smith, whose family owns a frozen
vegetables business. "I don't want to send the wrong signals to the
marketplace . . . but I'll tell you, the wrong signal is a recession."
Abraham repeatedly sought to counter criticism that the Bush administration
is not doing enough to aid the West, citing a letter he sent to Davis
yesterday that said the White House will not oppose the state's plan to take
over the investor-owned utilities' transmission lines, despite disagreeing
with the approach.
"Regrettably, I think our opposition to price caps has been claimed by some
to suggest that the administration either does not care about California and
the West or is doing nothing to help," Abraham said. "That is simply untrue."
Abraham said the Federal Energy Regulatory Commission's recent order to 13
power suppliers to refund $69 million in January overcharges to the utilities
would send "a signal that companies that exploit a serious situation aren't
going to get away with it."
He also cited expedited federal approvals and waivers for power plants and
discussions with Mexico to try to increase electricity exports from Baja to
California.
But Abraham firmly rejected price caps, saying they "have already been tried
and already failed" in California when a price ceiling for electricity sales
into the state was reduced over the past year from $750 a megawatt hour to
$150.
RESULTS OF PRICE CAPS
"The lower the price cap was set, the higher average electricity prices
rose," Abraham said, in part because municipal utilities were exempt. New
federal price caps would affect just half of the Western electricity market,
he said, and so would shift supplies from regulated to unregulated markets
rather than control prices.
He also said price caps would "almost certainly" reduce sales from Mexico and
Canada and induce "cheating and circumvention."
Armed with charts showing huge wholesale price increases over the past year,
Feinstein expressed her strong disappointment.
"Oh, Mr. Secretary," Feinstein said, "I was really surprised by the ideologic
hardness of your statement. I must tell you that."
She said California will be 5,000 megawatts short of electricity this summer,
enough power for 5 million homes. "It's a lot of shortness," she said,
predicting that prices will reach $5,000 a megawatt hour. "What does
California do about that if it isn't going to get any help to provide that
stability and reliability over that period of time? . . . All we're asking
for is help to prevent price-gouging."
Abraham countered that the administration's position is "common sense."
"I'm telling you, I think this summer, if California has worse blackouts than
currently projected, that (price caps) would have been a disservice to the
people of your state," Abraham said. "If the rest of the West finds the
Canadian energy providers refusing to sell at the same levels because of
price caps . . . that's in my judgment an irresponsible carrying out of our
public responsibilities here."
In Sacramento, Davis said he was "particularly grateful" for the
administration's promise not to oppose the state transmission takeover. He
also said the state would "have just enough power to avoid blackouts" but
said "federal officials are of a different view."
Still, the governor continued to urge ''some effort to temper wholesale
prices."
E-mail Carolyn Lochhead at clochhead@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1