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Sowing the seeds for California Crisis II?

Experts say that many of the new policies by the PUC and the state legislature seem to be putting the Golden State on track for more blackouts.
Fortnightly Magazine - May 1 2003

savings benefits. Some newer technologies are a bit more costly, she said, but given the combination of California's high rates and older physical plant, there are savings to be achieved. "Unless it's a brand-new facility, we've never gone into a place where we haven't been able to find efficiency opportunities with at least a 3-year payback," she said.

The traditional utility demand-side management (DSM) programs have largely been turned over to third-party providers, Lowe noted. The current trend in California commercial DSM emphasizes "standard performance contracts" over equipment rebates. That provides a quantifiable basis for allocating efficiency rewards to the utilities and customers based on actual savings from installations and measures-something the CPUC has insisted upon in recent years-but it doesn't solve the problem of initial capitalization.

Energy policy is not the only uncertainty plaguing California's business sector, said CMTA's Rothrock. "The economy is bad and it's not getting better any time soon," she said. With the total cost of industrial operations about one-third higher than the national average, energy expenses remain one of the major factors in determining the state's future economic prospects. But new costs loom.

As lawmakers and the Davis administration struggle to restore some balance to the state's budget, the axe is falling on programs, and every new taxing opportunity is being tried on for size. The schoolteacher layoffs and social service cutbacks are what get headlines in the newspapers, while efforts to impose fees and taxes on the business community receive less attention, Rothrock said.

The overall picture is troubling, she said, because CMTA members are "making decisions to move production out of state to the extent they can and they're letting existing investments phase out."

Exactly how much the California electricity crisis contributed to the overall economic malaise is a subject of debate for economists and policy analysts. For the electric utilities that continue to suffer from financial uncertainty, though, the crisis had a direct and persistent impact.

SoCal Edison is banking on paying off its past debts and regaining creditworthy status later this year, said John Fielder, Edison's senior vice president for regulatory affairs. But issues remain, including working through the state Supreme Court appeal of the bailout that is being pursued by ratepayer activists. Fielder added, "We need to get the state to take out of their lexicon the assignment of the DWR contracts" to the utilities.

CPUC decisions and the bond-issue documents have suggested that the contract obligations may be transferred to the utilities, Fielder explained. "What they don't understand is that if you assign these contracts to the utilities, the rating agencies will never give us a good rating. So we will always be paying more for our capital. We'll have to post a lot of collateral, and we'll have to have hundreds of millions of dollars in cash in a collateral account to back up the mark-to-market obligations for these contracts because they're so above market. All of these are additional costs that don't need to be incurred."

But as the state tries to shed costs and liabilities in order to