Power-Starved California Turns To Internet Auction

In a bid to cool the energy meltdown that ignited rolling power blackouts in California, Governor Gray Davis announced Tuesday that the state is going to hold an Internet auction to secure long-term, low-cost electricity contracts.

“I expect these bids on long-term energy contracts should stabilize the market and drive the price of electricity down,” said Davis. “This is a key step in our efforts to keep the lights on in California at a reasonable price.”

The 27-hour-long auction, which began Tuesday morning, is being conducted by the state’s Department of Water Resources (DWR). According to a statement issued by the governor, the sealed bids are for peak and off-peak energy contracts to extend over six months, three years, five years, and 10 years.

The sealed bidding process will remain open until noon PST Wednesday.

Bidders in the online auction must have an investment-grade rating from either Standard & Poor’s or Moody’s. If the rating requirement cannot be met, the DWR calls for bidders to provide an additional form of security.

Crisis State

The high-stakes auction rollout comes on the heels of an emergency order issued by Davis on January 17th. That order placed the DWR in charge of negotiating contracts and arrangements for electricity to help the state mitigate the effects of the energy crunch.

During a special session on energy called by the governor last week, the California State Senate also authorized the DWR to tap taxpayer money to purchase up to USD 400 million in energy until February 2nd.

Prior to the passage of this emergency bill, which was authored by Senator John Burton (D-San Francisco), the DWR had purchased $38 million worth of energy.

In the past week alone, however, the DWR has brokered day-ahead and hour-ahead power contracts totaling more than $75 million, in many cases with little time to spare before blackouts and related warnings hit more areas.

The rotating power outages have affected more than a million homes in the state.

Domino Effect

Because of what has now been judged a disastrous experiment in gas and electric deregulation, California’s power companies are now in dire financial straits. The deregulation law, which was passed in 1996, bars utilities from passing escalating wholesale power costs onto consumers.

The state’s two largest utilities, Pacific Gas & Electric (PG&E), which powers much of Northern California, and Southern California Edison, are on the brink of bankruptcy and say that they cannot afford to pay current market prices for energy.

Both companies are billions of dollars in debt, and both say they will not be able to remain in business unless they are free to spike the price consumers pay — or unless providers drastically slash the cost of energy.

To make matters worse, many experts believe the situation could grow more serious, plunging the entire United States into its worst energy crisis since the 1970s.

Choices Ahead

Despite the dire situation, state power officials said they were able to ward off blackouts Tuesday by buying electricity from Canada.

Meanwhile, the California legislature is considering several other possible resolutions to the crisis, including one which would allow PG&E and Southern California Edison to donate their hydroelectric plants to the state.

In exchange, the state would begin purchasing additional power through long-term contracts and on-the-spot market choices that have led to enormous debts for the utilities. The plan would make California one of the largest owners of hydroelectric power in the U.S.

Another plan, which has been passed by the California State Assembly, would put the state in the electricity business for up to five years, buying power at low rates and selling it directly to consumers. In order to be implemented, the proposal needs to be approved in the state senate and signed by the governor.

On the Watch

According to published reports, Davis is reviewing both suggestions but considers the first alternative more viable.

Some of the plans have drawn intense criticism. Earlier this week, advocacy groups delivered to Davis more than 5,000 signatures collected from consumers, protesting what they call a multibillion-dollar bailout for the utilities.

At the same time, U.S. Energy Secretary Spencer Abraham and other Bush administration officials met Monday in Washington, D.C., to examine California’spower crisis.

Abraham has not yet announced whether he will extend an emergency order (made by his predecessor, Bill Richardson) that kept power flowing to California despite worries over the solvency of the utilities. That order was slated to expire at midnight Tuesday.