As California entered its eighth straight day with energy reserves below 1.5 percent, which constitutes a Stage 3 alert, Gov. Gray Davis opened auctions to energy suppliers Tuesday morning.
The auction is a state attempt to begin solving the California energy crisis that has pushed suppliers Southern California Edison and Pacific Gas and Electric close to bankruptcy, causing rolling blackouts in Northern California. The bidding opened for long-term contracts from any energy generation plant Tuesday at 9 a.m. and will close today at noon.
Mike Silicia, spokesperson for Davis, said the state is hoping to receive bids as low as 5.5 cents per kilowatt-hour, compared to the 40 or 50 cents Edison and PG&E have been paying to wholesale market contractors, which provide approximately 30 percent of the state’s energy. The state, whose good credit could allow it to buy and sell energy at low rates, is hoping to acquire these low rates by entering into long-term contracts with suppliers. Long-term contracts could benefit the state by offering a fixed rate per kilowatt-hour, as opposed to a short-term contract, which allows energy suppliers to raise per-kilowatt-hour prices based on supply and demand.
"[The auction] requests bids of six months, one year, three years, five years and 10 years from power providers, and that’s open until noon [Wednesday] for bids to come in," Silicia said. "The state would contract with these outside bidding companies – they would be contracts to purchase electricity."
Since electricity in California was deregulated in 1996, forcing PG&E and Edison to sell their generation plants to outside contractors, the companies have been forced almost $12 billion into debt, resulting in threats to cut off the state’s energy supplies. On Tuesday, President George W. Bush mandated a two-week extension requiring these generation plants to continue selling power to California, according to The Associated Press.
The state has set aside $400 million for emergency funding, slated to last through Feb. 2, Silicia said. After bidding ends today, the Dept. of Water Resources and state legislators will analyze the bids and decide whether to go forward with them.
"After the bidding closes, the bids will be opened in private by the Dept. of Water Resources, who have been buying and selling water and electricity for the last four years for part of the state water project," he said. "Where the money [would] come from needs to be decided by the legislature. … They’re working on it under bill 1X, which is to be the funding mechanism. Nobody actually knows what that is yet."
On Monday, state Assembly Democrats introduced a proposal suggesting California acquire Edison and PG&E’s statewide hydroelectric plants and sell as much as $12 billion worth of bonds in order to enter into long-term contracts with other energy suppliers. Under the plan, the two companies would exchange these plants, which supply about 40 percent of the state’s power, for the ability to use some of their current rates to pay off debt.
Assembly member Hannah-Beth Jackson (D-Santa Barbara) said the proposal, crafted by a group of stakeholders, would radically change the state’s involvement in energy purchasing.
"It’s a proposal that would make a complete settlement and basically restructure how energy is purchased in California. But there are other options that are being considered – there’s a question of whether California really wants to get involved with the purchase of hydropower in the state," she said. "It certainly has interesting points to it, some of which may be really good. If we’re going to be taking the risk the utility companies aren’t willing or able to pay anymore, the taxpayers should get something in return. And I like the idea of obtaining and acquiring their generation facilities so we can operate them in the most environmentally sound way possible."
Rodger Salazar, deputy press secretary to Davis, said the governor has not taken an official position on the proposal.
"Obviously the governor is open to all proposals – at this point he’s not going to rule out any ideas. He’s going to have to take a close look at the wording on that legislation," he said. "The bottom line is the governor and the governor’s staff are all working very closely with both the Senate and Assembly to try and come up with some positive legislation to try and get through this energy challenge."
Edison spokesperson Tom Boyd said the company has not taken a position on either the auctions or the Assembly’s proposal to buy California’s hydroelectric plants. Boyd added that Edison has laid off approximately 1,850 employees since the crisis began. PG&E was unavailable for comment.
"If we don’t receive some resolution for what we call our under-collection problem – it’s an upside-down business equation, where we’re selling something for less than what we paid – we will have to lay off more people," he said.
Officials are encouraging California residents to conserve as much energy as possible by turning off all lights and electrical appliances when they are not being used.
"This is an issue that’s important to everybody, and I’d like my community to understand it as best is possible," Jackson said. "And frankly, we can all do our parts by a couple of simple things. If you’ve got a refrigerator humming that’s only got a pack of beer in it, unplug it and take the beer out. If you’ve got a computer screen, when it’s asleep, turn it off. Don’t leave lights on. These are simple things, but they save an enormous amount of energy."