Report warns of 'second power crisis' for California

Citing a growing danger of electricity shortages this summer or next, an advocacy group for business and local governments wants state officials to intervene by speeding up permitting of new power plants and allowing utilities to sign long-term contracts with power sellers.

Those and other "near-term fixes" will be needed to keep the lights on during the summer of 2006, the Bay Area Economic Forum warns in a 28-page report issued recently. Because of economic growth and a lag in power plant building, "the risk of a second power crisis is very real," it says.

Titled "Lightning Strikes Twice," the report seeks to strike a chord with Californians shocked and angered by the rolling blackouts that followed a steep rise in wholesale prices that began in 2000.

But Severin Borenstein, executive director of the UC Energy Institute, noted that "the crisis they're talking about is very different" from the events of 2000-01.

John Nelson, a spokesman for PG&E Corp., said that the utility supports some of the measures advocated in the report, including stepped-up investment in high-voltage transmission lines, but not its premise. "We disagree with the dire nature of the forecast," he said.

The new report is the fifth in a series done for the forum by McKinsey & Co., a consulting firm. While its policy prescriptions aren't new or unique, the document could serve to increase public interest in energy issues that have so far mainly concerned industry insiders and full-time policy advocates.

Previous forum reports consistently called for expanded competition in the electricity industry but sometimes offered inaccurate forecasts, such as a grim prediction issued in April 2001 that foresaw a summer of daily blackouts totaling hundreds of hours. Those blackouts failed to materialize after electricity users responded to calls for conservation and a sharp slowdown in the state economy cut demand.

Much has changed since the 2000-01 crisis. Thanks in part to an expensive and oft-criticized portfolio of contracts signed by state officials in early 2001, much of the state's power supply is already lined up. Utilities that reeled under a rate freeze that limited revenue even as costs soared have now regained financial health. Regulators seem more attuned to the potential consequences of rising costs and the dangers of market manipulation.

But more action is needed, according to the forum, which criticizes "California policy makers" who "have not acted quickly enough to encourage new infrastructure investment by establishing a clear rate-setting process that provides adequate guarantees to investors."

Power plant construction and long-term contracts are central issues in energy policy deliberations that are already under way around the state. In Sacramento, the Energy Commission is reviewing an integrated plan to send to Gov. Arnold Schwarzenegger. In San Francisco, the state Public Utilities Commission is reviewing energy- procurement plans in which utilities are seeking a green light to build more power plants and sign contracts with power sellers. A bill pending in the Legislature would codify the utilities' pivotal role as power shoppers, while an approach favored by Schwarzenegger and a majority of the PUC would open the door to expanded competition from private energy merchants.

Schwarzenegger also has on his desk a government-reorganization plan that would merge various power agencies into a cabinet-level infrastructure department.

Borenstein welcomed the forum's call for the state to front the money for a program to install meters that would vary the rates of residential customers during different times of day and that would force large users to pay market rates moving minute-by-minute, prompting more conservation.

While the costs of such a program remain unclear, the forum projects that it would pay for itself in a short time by eliminating the need for costly additions to power plant capacity needed to meet peak demand. Borenstein noted that about 20,000 meters have already been installed at a cost of $35 million for electricity customers whose usage peaks above 200 kilowatts, or the equivalent of 2,000 100-watt light bulbs. Those users comprise about one-third of the overall demand for electricity, he said.

An additional 10 million meters would need to be installed to include all customers in the moving rate program, but they would not need to be as sophisticated or expensive as those installed for large users, he said.