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Associated Press

Posted on Fri, Jul. 21, 2006   

Little risk to Schwarzenegger of blackouts, thanks to Gray Davis

Associated Press

SACRAMENTO - Despite a midsummer heat wave that has pushed energy use to an all-time high this week, experts say Gov. Arnold Schwarzenegger probably does not have to fear the blackouts that ended former Gov. Gray Davis' political career.
And he has Davis to thank for that.
The long-term contracts Davis signed, at great political cost, guarantee plentiful energy for the next few years at what now look like good rates.
"In an interesting twist of fate, he's benefiting from the decisions that his predecessor suffered for," said Frank Wolak, a Stanford economist who specializes in energy. "The terrible contracts" Davis "signed at the height of the crisis are now quite reasonable."
Davis was recalled from office in 2003 and replaced by Schwarzenegger, in large part because of the energy crisis.
Schwarzenegger's Democratic opponent, state Treasurer Phil Angelides, has tried to capitalize on fears of a new wave of blackouts as temperatures climbed. This week, he warned of "a new energy crisis" and blamed Schwarzenegger for failing to build enough power plants.
But energy experts say although population and job growth have pushed the system up near its capacity, today's situation is nothing like the energy crisis of 2000 to 2001.
The blackouts occurred largely because of market manipulation. With utilities dependent on the spot market, energy companies such as Enron withheld supply to drive up prices.
But with utilities now buying power under long-term contracts, there is little danger of a repeat.
And while it is true that fewer plants have been built under Schwarzenegger than while Davis was governor, the California Independent System Operator, which manages the state's power grid, said the state has adequate power supply, even during heat waves like the current one. The high temperatures are forecast to last at least the beginning of next week.
On Monday, the state shattered its previous energy consumption record, peaking at 46,501 megawatts. But the system did not falter, and Cal ISO did not have to trigger voluntary rationing by businesses.
That does not mean the state could not face problems in the future. Experts say California could face blackouts if the electricity supply fails to keep pace with rising demand or if utilities do not negotiate new long-term contracts as the old ones expire in the next few years.
State Sen. Joe Dunn, D-Santa Ana, said if a 100-year heat wave were to hit, the state would be vulnerable to blackouts because it does not have enough reserve power. That requires utilities to generate excess power, costing them money.
A 20 percent reserve, he said, "is very costly. But the problem is, 10 percent is not adequate for a 100-year heat wave."
Angelides says Schwarzenegger is not preparing for the future because he has not encouraged as many new power plants to be built as Davis did. But experts said the slowdown was the result of so many power plants being built during the Davis administration, creating a supply glut that reduced the economic incentive to build new ones.
Building new plants is not the only way to increase the state's energy supply, however.
Given California's energy use patterns, which peak on hot summer afternoons as residential customers turn up their air conditioning, several experts said the state would be better to encourage conservation than build power plants that only get used a few hours a year when demand skyrockets.
Severin Borenstein, director of the University of California Energy Institute, said Schwarzenegger could prod the state Public Utilities Commission to encourage users to conserve energy by charging them more for the power they use during peak hours. In exchange, customers would get cheaper power during off-peak hours.
Although the state spent $35 million during the energy crisis on new meters that can tell when businesses use their power each day, they have balked at being charged on an hourly basis for energy, and the PUC has been slow to set new rates.
Conservation has "taken a back seat to the, 'We gotta build, build, build' mentality," Borenstein said. He said states such as Georgia, Florida, New York and Illinois already charge companies more for peak energy use.
A spokesman for the governor, Darrell Ng, said Schwarzenegger supports a market-based conservation approach but wants to do it carefully to avoid repeating the mistakes of deregulation, which led to California's electricity crisis.
On Thursday, the PUC gave Pacific Gas & Electric permission to install new time-sensitive meters for residential users. But it will take five years to install the meters and participation is voluntary.
In the meantime, California is keeping up with rising demand by applying energy efficient building codes and better technology. Although the state's population grows by 2 percent a year, its energy usage has risen only 1.8 percent a year, said Claudia Chandler, assistant executive director of the California Energy Commission.
"On a per capita basis, California leads the nation in efficiency," she said. "Our consumption is flat compared to 30 years ago."