Energy shortage unlikely in California, report says

New power plants and conservation efforts make a repeat of last summer's California energy shortage unlikely, according to a report Monday from the state's energy commission.

The report runs counter to warnings over the past five months that the state is suffering through an electricity crisis and was immediately disputed by the state's power grid traffic cops.

"The sky is not falling here," said energy commission spokeswoman Claudia Chandler.

Skyrocketing energy prices that tripled San Diegans' electricity bills and repeated warnings of possible blackouts throughout the state might have had more to do with the way the newly deregulated electricity market is working than with a shortage in electricity, Chandler said.

"This doesn't address something that might be really important, and that is how the market functions," Chandler said. "If there's a supply and demand balance here, what went wrong? ... Why did they get so out of kilter?"

But the report's conclusions were disputed by the California Independent System Operator, a nonprofit agency created by the state to oversee the electricity grid that powers three-fourths of the state.

"We think they're probably several thousand megawatts overly optimistic," said Cal-ISO chief operating officer Kellan Fluckiger. "In some cases, they were incredibly optimistic. We're the ones responsible for actually shutting the lights off, if that happens, so we tend to be more realistic in our assessment."

The energy commission report was one of several significant developments Monday involving California's electricity picture:

• The state Public Utilities Commission on Monday issued a 4,000-page draft environmental report on PG&E's proposal to auction 174 power-generating dams, from Mount Shasta to Bakersfield. The draft says that the health of California's rivers would best be served under the status quo — the company would hold onto the dams and the state would continue to regulate their operations.
• PG&E withdrew a related proposal to sell its dams to an unregulated affiliate for a previously negotiated price of $2.8 billion, declaring that high energy prices this summer showed those dams were worth much more.
• And the state's deregulation architect, Sen. Steve Peace, D-El Cajon, announced on Monday that Senate Democrats would propose setting aside $2 billion in next year's budget for energy initiatives.

Meanwhile, Gov. Gray Davis has been meeting with top advisers to draft an energy plan due out next week. The plan will be Davis's proposed remedy for the state's electricity problems.

The energy commission paints a surprisingly stable picture for next summer. Unless California sees extraordinarily hot weather, the state should have enough power to meet its demand, according to the report.

Factoring in to the energy commission's analysis are new power plants that will generate another 1,800 megawatts, including a 500-megawatt power plant in Pittsburg, scheduled to be completed by next August.

And new energy conservation initiatives, including a new state grant program, should help keep demand down, according to the commission.

"With new resources coming online and new conservation measures taking effect, next summer looks better than expected, if we manage our resources properly," commission director Steve Larson said in a written statement.

But Fluckiger of the ISO said the report overstated the amount of electricity that will be available next year by at least 3,000 megawatts, enough to power three million houses. And, he said, that would be the case even without deregulation.

"My largest worry about this report is that the urgency to build new power plants will be removed," he said.

As for the PUC report, under the state's 1996 deregulation law, electricity utilities were required to determine the market value of their power-generating assets. PG&E is seeking to meet that requirement by auctioning its massive hydropower plumbing infrastructure, which has been estimated to be worth as much as $5 billion.

But the new PUC report says new, unregulated owners would have an incentive to withhold electricity until the price is high, and then take advantage of those high prices by generating electricity. Those kinds of operations could damage fish habitat and create problems for boaters and anglers.

The report also said new owners would be likely to develop land now owned by PG&E for homes and increase logging and grazing in some area.

PG&E had no comment on the report.

Environmentalists were pleased with the PUC draft report, saying it could lead to fixing the damage that power-generating dams have created on the state's rivers.

"It gives us a big leg up at least in not letting things get worse," said Tom Graff, the western regional director for Environmental Defense.

The fate of the PG&E dams also has implications for electricity consumers.

Once the dams, canals, pipes, flumes and turbines are sold, that money would be applied to PG&E's money-losing investments, including its nuclear power plant. Once those losses are recovered, a rate freeze that protects consumers in the Bay Area would be lifted and the up-and-down prices of electricity will be reflected in consumers' bills.