The Big Electric ZAP!

The current California electric crunch may not be an isolated instance. More and more it's starting to look like the tip of a very nasty iceberg...

Different areas around the country are now starting to talk about conservation and efficiency in energy usage as a means to assure that the juice will keep flowing smooth and steady across the land. The Environmental Law and Policy Center in Chicago recently published a paper on this topic and on March 25th, the Grand Forks Herald stated: " ...when a state makes bad decisions about using and making electricity, lights go out and machines shut down."

States other than California may not have any great worries this summer. The rhetoric coming forth from officials is starting to send a message that next winter and the summer of 2002 could see a wider area of brown-outs, rolling black-outs, increased cost for both electricity and winter 2001 heating.

In Minnesota there are worries that some of their power utilities might face financial conditions similar to those of the great California Pacific Gas and Electric (PG&E), which filed for bankruptcy protection over unpaid fuel bills. In an effort to avert any problems, government and the utilities are doing many different things: Recently Minnesota Power (a company which supplies electricity to parts of Wisconsin and Minnesota) joined the nation's largest distribution grid, Midwest Independent System Operator Inc. There are also several bills before the Minnesota legislature aimed at helping to prevent just the kind of catastrophe seen in California, but as in California, the state is not always equipt to deal with the soaring natural gas prices.

The Taconite Harbor electric generating facility is up for sale with various potential purchasers moving in to make the buy, which would be another hedge against power shortages. There are articles, such as the one recently published in the Duluth News Tribune, preaching conservation by reducing usage.

In Missouri there is an effort underway that could seriously deregulate some of their power companies and allow for power generating plants to be sold off to private companies. This type of action is a large portion of what caused California's problems. And some people are worried that Missouri might face a similar crisis down the line if such a measure goes through!

California has attempted a deregulation of power utilities. Trying to market electricity along the lines of how long distance telephone service is now provided in the U.S. Each company then tries to get a share of the new marketplace by luring customers away from their current power provider. Some customers switched from one company to another and in some instances this didn't work out very well for either the customers or the power suppliers.

A Glendale City power generating plant that seems to be dormant -- Issues Photo by Tony Russo

The Los Angeles Department of Water and Power (DWP) is not having any of the current problems. They sell electricity to many customers, including the nearby city of Glendale, which use to operate its own power plants. For one reason or another the old Glendale plants no longer seem to be in operation. One can't help but wonder if these seemingly dormant power generators could be useful in making up for the current shortages in California!

Pricing structure of electric power also seems to vary in California. One supermarket owner said he is paying the DWP $3,500 a month at one store while at another similar store across town in the Southern California Edison (SCE) system he was paying closer to $2,000 a month. It is possible that the DWP has been charging more realistic rates than other suppliers, such as SCE. (SCE claims they are locked into their rates by the commissions who must approve rate increases before they can take effect. It might also be possible that SCE may have underestimated the amount of usage and ultimate cost to supply the power needed by customers. Whatever the reasons, there seem to be some differences between what the DWP and SCE charge for similar power usage according to what some customers see on their bills.)

Over the last year or so SCE customers in San Diego had to seek local rate regulation to keep their bills from going sky high. More recently the same problems are now showing up in Northern California, where Pacific Gas and Electric (PG&E) supplies the power, and soon those problems will be coming to Kern County near Los Angeles which is supplied by SCE. Anyone who asked to switch from the DWP to SCE now has good reason to regret that decision. People in parts of Los Angeles not serviced by the DWP (such as San Fernando, which is bordered on all sides by DWP power supplies, but is, itself, supplied by SCE) can face a temporary black out at any point in time (without notice or warning).

Part of the problem is the recent increase in petroleum products (gasoline, for example, went up from $1.29 in 2000 to $1.99 or higher in recent times) including natural gas. Oil and gas are used to power many electric power plants. Part of the problem is also that, according to SCE, they were forced to sell off some of their generating plants as part of the deregulation effort. California no longer develops or really uses nuclear power plants (SCE used to have one in Southern California) and imports both water and electricity from neighboring states under contract. Not to mention that the California population has tripled or even quadrupled in the last 30 years. There are, for example, 50 million vehicles registered in California!

With agriculture relying on water, gas and electricity (plus the many national businesses headquartered in California), it is obvious that as the price of power goes up so does the cost of doing business. Ultimately, this will cause the cost of goods and services to rise internationally and soon you will be paying more for food, clothing - just about anything you can imagine! With the current forecast of a recession, the additional price increases from rising energy costs will only add to the inflation problems.

Finally, the conservation measures will come back to bite everyone in the leg. We saw this in California during the last two water droughts. In 1978 to 79 some Northern California water prices increased due to lower demand for water caused by forced conservation. From 1986 to 1990 a second drought in Southern California also saw water price hikes because of the same conservation measures. On California's water bills during these times they showed the previous as well as the current year usage with a surcharge for going over those levels. As a result less water was used as people complied with the conservation measures and then, the companies supplying the water had to raise rates to cover their business loss.

The same thing is destined to happen as SCE and PG&G in the west, along with companies in mid-west, are prepping users to conserve, conserve, conserve! As their income drops they will ultimately have to ask for rate increases to cover losses. It becomes a vicious circle that spells electric (and natural gas) rate increases that could go as high as 50 to even 100% over the next two or three years in some areas. That means a $100 electric bill could start to approach $200 by the end of 2002. And in a recession period net income will drop as people get laid off, asked to take salary cuts or raises and bonuses become leaner. In general, the cost of living goes up - inflation.

This summer will spell tough times for much of Southern California, as the temperatures will rise above 90 and into the 100s. In past years brownouts have occurred due to the increased power demand but, in this year the wintertime demand was so high that rolling blackouts were ordered. This has never happened before in California during the cooler winter period. Everyone is very worried about the long, hot summer months for this could well be a record temperature year.

Illinois has already stated that if there is the loss of a transmission station or power plant this summer, it could cause a lack of electricity in parts of that state, but officials seem to feel that is a big "if" and not a certainty, as it is in California. Nonetheless, Illinois is a long way off from California and the western power grid. So, if states like Minnesota and Illinois are starting to express worries, the electric crunch has the potential to become a more serious problem than anyone suspected.

In New York City they are now starting up 11 dormant power plants to make sure that area will not see the California rolling blackouts! Unpaid natural gas bills at one of their power plants in Kentucky have some residents worried. As with PG&E in California, they will not be able to afford fuel to make power or the cost of making the power will rise to cover past, present and future fuel purchases (plus, they can even be cut off from the fuel supply by going into credit default).

Representatives from 11 western states are busy talking with Federal Regulators trying to contain the rising fuel costs that will affect power generation and prices throughout the entire west (recently they reached a temporary solution which includes regulated rates for emergency power when needed)! It will also have an effect on heating prices in many areas that rely on natural gas (such as in California) for heating fuel. And even the heating oil used by the north and mid-west will cost more in a few months when you put your orders in for the next winter season.

The bottom line is that the cost of making electricity will continue to rise. The worries about nuclear power generation may have to be laid aside. That type of power generation has a better future than fossil fuels. The environmental issues are also going to have to be reduced, as the priority of most people is to keep the juice running, even if it means burning dirtier fuels.

Given the choice between no power and clean air, or full power and somewhat dirty air, most people would tend to say keep the power flowing! It is going to take time before new power plants can be built and these plants have to be financed somehow. That means bond issues, state indebtedness, higher taxes, higher energy costs.

In the meantime for the next one, two or even three years you can expect to see the juice run out sporadically in parts of the U.S. And it's safe to assume you will probably be paying twice as much for power and heating fuels in the not too distant future...

-- Tony Russo and Mary Simmons also contributed to this story. Additional material compiled from the DULUTH NEWS TRIBUNE, GRAND FORKS HERALD, TELEGRAPH HERALD, REUTERS and the LOS ANGELES TIMES.

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