CA Liberals’ Demand to Shut Power Plants Risks New Energy Crisis

The Los Angeles Times reports a new effort to shut down local natural gas power plants due to the possibility of a 21 percent electrical capacity glut by 2020. But shrinking the surplus generation cushion runs the risk of launching another energy crisis like the one that caused Governor Gray Davis’ recall.

It has been 14 years since Davis was recalled due to the California Energy Crisis, which featured electrical rates spiking by 1,100 percent and rolling power blackouts across the state.

The culprit then was the Clinton administration’s restructuring of electricity markets in 1998 to drive down consumer utility rates by encouraging the purchase out-of-state electricity on the wholesale spot market, rather than building local power plants and signing long-term supply contracts at slightly higher than spot market rates.

California’s Legislature created the California Power Exchange (CalPX), which made spot purchases from Texas’s Enron and others beginning in 1998. CalPX froze electrical rates to consumers at below the 8-cents-per-kilowatt-hour by charged by California power plants under 30-to-40 year cost reimbursement rates.

CalPX was a hero for two years, until wholesale spot market rates rose 270 percent in the month of July 2000, and then continued up to 1,100 percent higher by December. With a consumer price freeze and sky-high wholesale rates causing rolling electrical black-outs, Pacific Gas & Electric (PG&E) was forced to file a $9 billion bankruptcy in April 2001.

With Southern California Edison and San Diego Gas & Electric defaulting on $215 million in spot purchase contracts in 2002, CalPX was terminated, and utilities were again allowed to enter into long-term purchase contracts with local power plants at about a 10.5 percent return on investment.

But with California electrical demand going flat at about 27,000 megawatts since 2008 and Governor Jerry Brown pushing subsidized sustainable energy, one modern natural gas power plant has shut down and two more may be going offline, according to the Times.

A coalition that includes Loretta Lynch, a pro-consumer lawyer appointed to the California Public Utilities Commission (PUC) by Davis in 2000, and its president during the energy crisis, predicts that California’s current 15 percent excess generating capacity that will grow to 21 percent.

The consumer groups are demanding a shut down of all local new power plant construction, and a return to buying wholesale energy on the spot market as a way to cut future electrical costs, according to the Times.

But current PUC president Michael Picker predicts that California’s electrical demand will actually grow by about 10 percent to 29,646 megawatts by 2020. He warns that maintaining a state power supply cushion is a part of a strategic decision to build new plants to meet clean energy requirements and avoid another energy crisis.