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Concern Still Surges Over State's Energy

Power: CalISO gets authority to contract for new plants; PG&E seeks $2 billion in 'undercollections.'


California's top electricity traffic cop on Wednesday took on new responsibilities for providing the state with more emergency power as it again warned that the state probably won't have enough electrons to keep everyone's lights on next summer without significant new sources of electricity.

Separately, Pacific Gas & Electric Co. filed an emergency petition asking the California Public Utilities Commission to pass on to consumers at least $2 billion in extraordinary electricity costs the utility has paid this summer.

The action, which was expected, follows a summer in which the PG&E Corp. unit and the state's two other investor-owned utilities racked up at least $5 billion in "undercollections"--the difference between the record wholesale electricity prices they paid and the retail rates they are allowed to charge customers.

At the heart of both developments Wednesday is a lag in new generation needed to keep up with the state's growing demand for electricity.

California narrowly dodged statewide rolling blackouts this year but might not be as fortunate next year, when demand for electricity will exceed supply by more than 5,000 megawatts on the hottest summer days, Terry Winter, president and chief executive of the California Independent System Operator, said at a contentious meeting of the agency's board of governors.

The board of the Folsom-based nonprofit, which controls about 75% of the state's electricity grid, voted to give the ISO staff authority to contract with generators to build new power plants to serve peak demand.

The new generation program puts the ISO in a curious role reminiscent of a pre-deregulation utility, with some control over both transmission and generation.

The ISO is charged with making sure there is enough electricity available to meet demand--a task that left the agency scrambling again and again this summer to round up enough power. In August, the state endured a power emergency every 18 hours on average. (Customers of the Los Angeles Department of Water and Power do not face shortages.)

"We never anticipated the ISO would take on the responsibility of stimulating development of generation resources this directly," Winter said. "However, if we do not assume this role, we will be increasingly challenged in our efforts to protect consumers from suffering rotating blackouts next summer."

The ISO solicited proposals for power plant projects that could be operating by June, and received bids representing about 2,000 megawatts of generation, or enough to serve about 2 million homes. The electricity would be sold into the California Power Exchange or through separate contracts, but the ISO would have the right to call on those plants to provide emergency power to the grid for up to 500 hours each summer when supplies are tight. The ISO would pay generators as much as $255 million a year for that right.

Board members expressed reservations about the cost of the power from the peak-generation units.

"These are very important issues to the state of California. We need to know before decisions are made what these costs are," said Gary Heath, executive director of the California Electricity Oversight Board, which oversees the ISO.

PG&E's petition states that since June, the San Francisco-based utility has paid an average of $1 million every hour, 24 hours a day, that it has not been allowed to recoup from customers under a 1996 rate freeze imposed by the Legislature.

The petition, which might be considered as early as Oct. 19, asks the PUC to reconsider a 1999 decision that forbids the utilities to pass on costs to customers after the rate freeze ends, in either March 2002 or whenever the utilities have paid off billions of dollars in "stranded" costs resulting from now-uneconomical investments in nuclear power plants and alternative energy contracts.

Southern California Edison, a unit of Edison International in Rosemead, will soon file a similar petition with the PUC, said Bob Foster, a senior vice president. As of the end of August, Edison's undercollections had reached $1.9 billion.


Times staff writer Nancy Vogel in Sacramento contributed to this report.

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