California Electricity Crisis and Timeline of the major events

California Electricity Crisis and Timeline of the major events

A Brief Introduction:

California suffered multiple blackouts and acute shortage of Power. And since north western drought had hit the state during that time, the situation worsened and turned into a crisis. Due to low generation of power in the state thus making it highly dependent on imported electricity, transmission line constraints within the state for imports and exports of power, total shutdown of the power plants by Texas Based Energy Company called Enron Corporation (which later went bankrupt and finally collapsed), and lastly huge market manipulations caused the retail prices of electricity to double and the cost eventually went up as the demand increased. As a result people had to pay high prices for the electricity. The price continued to increase and the state utilities had to purchase the electricity at a much greater expense but they couldn’t pass on to the customers due to state rate freeze thus making the whole system unstable. Millions of dollars were spent to lobbying efforts and political campaigns trying to curb deregulation, most of it from the utility companies. Financial Crisis and Electricity crisis formed kind of a feedback loop that made the situations worse during 2000-2001.

Series of events that took place:

 December 1995

·         The California Public Utility Commission (CPUC) opens doors for competition by passing their vote and regulating the consumer energy rates.

September 1996

·         The Governor Pete Wilson signs the Assembly bill 1890 for energy deregulation legislation.

·         This opened the state electricity market to competition.

March-April 1998

·         Deregulation takes effect in the state of California, making it the first state in the USA to do so.

·         Utilities began to deprive themselves of power generation plants because they were forced to give up their power plants and act as energy providers.

July 1999

·         San Diego Gas & Electric (SDG&E) sells its power plants and raise the consumer price caps as a result of Assembly Bill 1890 for deregulation passed by the government.

·         The retail prices as well as the wholesale prices are even higher than before, that is the prices had tripled this time.

·         San Diego becomes the first city in the state to do so.

May 2000

·         The California ISO (Independent System Operator) announces the first of many Stage 2 emergencies (energy reserves below 5%).

·         ISO is responsible to manage the power grid.

·         The average Total Energy Cost for a month was 61$ per MWh which was twice the average costs for 1998-99.

June 2000

·         Average monthly energy costs reach a new high of $167 per MWh.

·         Multiple Rolling Blackouts occurred on 14 June, 2000 due to power plant outages and being a really hot day with temperature of almost 40̊C led approximately 97,000 PG&E consumers to suffer the consequences.

August 2000

·         The SDG&E lodges a complaint against the manipulation in the energy markets.

·         Governor Gray Davis thus calls for an investigation of the alleged manipulation in the energy markets.

·         The CPUC investigates the matter and the findings of its report contains the faults with deregulation and the public is warned of further increase in the cost of electricity.

September 2000

·         Legislature caps prices again for the residential and commercial customers of San Diego for 3 years.

December 2000

·         The California ISO announces the first Stage 3 power alert in the state denoting that power reserves had dropped to less than 3%.

·         The average monthly cost for electricity was touching the sky now at a rate of $317 per MWh.

·         Since the state was facing the highest prices for electricity in the history, the U.S. Energy Secretary Bill Richardson issued an emergency order for out-of-state power suppliers to sell electricity to the PG&E and Southern California Edison (SCE) customers at reasonable rates.

·         But they denied to do so because they were afraid that they wouldn’t be paid dully for the services that they would render.

·         The FERC thus pass an order which implements a breakpoint/soft price cap/flexible rate plan of $150 per MWh but it also gives power to the utilities to charge more if they feel like the price is inappropriate.

·         The exorbitantly high rates reaches a new height now of over $1400 per MWh, as compared to the average price of $45 per MWh last year.

·         SCE charges FERC for failing to implement reasonable prices for wholesale electricity. FERC is sued by SCE and Governor Gray Davis.

January 2001

·         The CPUC harmoniously allows temporary rate hikes of 7%-15% for SCE and PG&E because the credit ratings of them suffered a downfall and reached junk status.

·         The ISO called for rolling blackouts in Northern and Central California for two days back to back.

·         Governor Gray Davis declares a state of emergency and signs an emergency order for the Department of Water Resources (DWR) to purchase the power for a period of 12 days to thwart the bankruptcy of SCE and PG&E, as well as subsequent blackouts.

·         Bush administration Secretary of Energy, Spencer Abraham, gives a final two week extension.

·         Bill Richardson issues emergency order forcing power wholesalers to sell electricity to California.

February 2001

·         Governor signs Assembly Bill 1X.

·         California legislature implements a $10 billion power-buying plan to avert further blackouts and thwart the bankruptcy of SCE and PG&E.

·         DWR start buying energy and also signs more than 50 long term power deals to make the state’s financial reserve stronger again.

·         Since it was the last extension, hours before it was about to expire the U.S. District Judge Frank Damrell in Sacramento passed a temporary restraining order, pushing major power wholesaler Reliant Energy to carry on selling energy to California. Two other wholesalers, AES Pacific and Dynegy Power also came forward to sell to California.

·         Governor Gray Davis proposes to purchase the transmission lines of these wholesalers for $2.7 billion so that he just might eradicate the bankruptcy.

March 2001

·         The generators are alleged by ISO to overcharge the customers by $550 million in Dec and Jan.

·         ISO files a report for this overcharge allegation and asks FERC to investigate the matter and refund the extra charges.

·         FERC orders 13 wholesale suppliers to either justify their overly charged rates or return $69 million to the utilities.

·         FERC also orders 6 additional companies to refund $55 million or to provide the justification of their over charge. The companies were Reliant Energy, Dynegy, Duke Energy, Williams Energy Services, Mirant, and Portland General Electric.

·         State wide rolling blackouts take place and Stage 3 emergency was declared. The blackout takes place for 2 consecutive days and nearly 1.5 million people suffer the consequence.

·         CPUC orders to raise the prices for PG&E and SCE customers by 3¢ per kWh for those who consumed more than 130% of the baseline and makes permanent the 1¢ per kWh increase in January.

·         Governor Davis refers to this action of CPUC as ‘premature’.

April 2001

·         PG&E files a case in the court for Chapter 11 bankruptcy protection for a debt of 8.9 billion dollars.

·         A federal appeals court blocks the order that allowed Reliant Energy to sell power to California.

·         Governor Davis puts forward a plan in which basically the consumer rate is slightly lower than that charged by CPUC, hoping to relieve the utilities of the debt that they have incurred.

·         He called it 20/20 plan because it would offer a 20% rebate to the consumers if they would cut down their consumption by 20%.

·         But the companies criticize his plan because according to them it is a very small and insufficient amount for them.

·         Governor Davis writes to FERC’s Chairman Curt Hebert criticizing FERC’s decision to deny summarising the wholesale price caps.

·         FERC faces political pressure and agrees to allow a price cap only during times of stage 1 emergency or greater when the nationwide reserve would fall less than 7%.

·         The legislature passes bills for increasing conservation and efficiency programs. The price is capped for all San Diego customers at 6.5 cents per kWh.

·         FERC declares to put a cap on wholesale prices only during times of stage one or greater emergency periods.

·         CPUC and SCE files a court case against El Paso for fixing, accusing it for withholding the capacity to drive up natural gas prices.

·         FERC starts to investigate the charges on El Paso which owns the largest pipeline to serve Southern California.