Governor Assails U.S. Over State’s Electric Crunch; SCE Struggles

Southern California’s largest utility raised the specter of layoffs and Gov. Gray Davis accused federal regulators of worsening the state’s precarious electricity situation in sometimes contentious testimony Thursday in Washington.

In addition to the expected finger-pointing at a hearing before the Federal Energy Regulatory Commission, glimpses emerged of how record wholesale electricity prices are affecting California’s utilities and other businesses.

Rising wholesale electricity costs, which cannot be passed along to customers because of a rate freeze, are causing serious problems at Southern California Edison Co., an executive for the Rosemead-based utility testified.

“For us, this literally is a matter of corporate life and death. We are bleeding profusely,” John R. Fielder, senior vice president of regulatory policy and affairs at SCE, a unit of Edison International, said in a departure from prepared remarks. “We are reducing employment and cutting back on capital investment because we just can’t come up with the money to pay for these purchases.”

SCE spokesman Clarence Brown said the utility has instituted a hiring freeze but has not yet laid off any of its approximately 13,000 employees, although that remains a possibility if the utility cannot collect the more than $2 billion in wholesale electricity costs that have piled up since May under the rate freeze. The utility also has halted new equipment purchases, remodeling and construction projects and charitable contributions, and is working to reduce overhead, Brown said.

The Federal Energy Regulatory Commission on Nov. 1 issued a proposed market order that would make several technical changes in the way electricity is bought and sold in California. But the proposal left many in California disappointed because it did not require refunds of record profits that power plant operators earned during the summer.

Still, as the four commissioners gathered public comment with an eye toward issuing final regulations by the end of the year, observers expect the results to be shaped partly by the outcome of the presidential election.

The new U.S. president would be able to fill the post occupied on an interim basis by Chairman James J. Hoecker, a Democrat, whose term expired in June. The commission’s only Republican, Curt Hebert Jr., generally opposes price caps and other forms of market intervention that the utilities, some consumer groups and other parties insist are the best way to bring the state’s wholesale prices under control.

The commissioners on Thursday got an earful from California politicians, regulators, consumer advocates, utility executives and power plant owners. Most commended the commission for its efforts before picking apart the proposed overhaul of the California electricity market and even challenging FERC’s authority to order some changes.

Gov. Davis slammed commissioners for failing to give immediate relief from the sky-high electricity prices and complained that proposals to fix the state’s power crisis could instead hamper its ability to mend itself.

“You agree with us that California has a problem. You agree that the marketplace is not competitive. You agree that rates are not reasonable and just. But you are not willing to do anything about it,” Davis said in his strongest denunciation yet of the federal handling of California’s electricity meltdown.

“Moreover, what you are prepared to do further reduces California’s ability to solve its problems,” Davis said in videotaped testimony, noting that the commission stripped the California Independent System Operator, which runs an electricity market for backup power, of the ability to impose price caps next summer should FERC’s new market rules fail.

He accused the panel of asking the state “to knuckle under for the next 10 years or so, thereby weakening our economy and putting our consumers and businesses at great risk. I cannot allow you to do that.”

High electricity prices are harming California’s economy, consumers, businesses and government officials testified. While such prices might be expected to spur investment in the state’s power market, regulatory uncertainty is causing some power plant builders to reconsider developing projects in the state, executives said.

“We are suffering,” said Dianne Jacob, chairwoman of San Diego County’s Board of Supervisors. San Diego and south Orange County were the first to pay free-market prices for electricity; consumers’ bills more than doubled in summer. “Our economy is suffering. Businesses are closing their doors. No business wants to come to San Diego.”

State Sen. Steve Peace (D-El Cajon), an architect of the state’s landmark 1996 deregulation plan, warned that FERC does not understand the politically charged atmosphere in California. If the market problems are not solved, he said, commissioners should expect a ballot initiative in 2002 to re-regulate the industry.