With an eager new energy secretary, Spencer Abraham, and a nominee to head the Federal Energy Regulatory Commission, former Mississippi state utility regulator Curt Hebert, on their way in, the Bushies remain hopeful that they can find "long-term" solutions to the U.S.' darkening energy picture, as Bush spokesman Ari Fleischer put it. But even the longest journey must begin with a single step, and with the economy teetering and the political climate in Washington tense, the inevitable first one making California make deregulation work without federal help is most definitely a lulu.
So Abraham extended just-departed Energy Secretary Bill Richardson's standing order to force western energy suppliers and the neighboring states they supply to continue selling their surplus electricity to California and its drowning-in-debt utilities. This despite the wide-open question of whether the utilities (or anyone else) will ever pay them for the juice.
It took a personal call from a very nervous California governor Gray Davis to get the stay, and the administration hinted that this would be the last one. And so Davis is moving on with his solution No. 1, the state's auction of long-term, fixed-price supply contracts, aimed at stabilizing the long-term power supply now that the spot market is killing the state's power buyers. (This was almost a part of the original deregulation plan, but the utilities thought they could do better with short-term purchasing. They were wrong.)
It's limping along in a half-assed fashion typical of the botched deregulation that got the state into this mess. First, Davis set $55 a megawatt hour as a hoped-for price ceiling, which few companies are hewing to, what with prices sky-high and power scarce for the region's foreseeable future. (The state also refused to consider any price flexibility in the contracts, forcing bids up higher to cover the uncertainty.)
By Wednesday, the Wall Street Journal was reporting widespread criticisms of the auction by its participants. Steve Bergstrom, president of Houston utility Dynegy, described the state's bid request as "price, volume, term. It doesn't allow much creativity," he said. "But I don't guess there's anyone at the state who would understand anything much more complicated than that."
Power suppliers are basically ignoring the state's terms, and suddenly Davis was sending out weary signals that any bids received would be treated simply as initial proposals. Analysts expect the price caps and starry-eyed terms to go out the window, which would leave the state of California paying gasp! market prices for power. Leaving Davis the political Hobson's choice whether to charge Californians for the juice as taxpayers or consumers.
In a few years' time, the power plants that Davis approved for construction will have gone online, and the state's power crunch may well be eased. And by then, the Bush administration may have come up with some fresh answers of its own (Abraham's current plan for keeping oil prices manageable? Diplomatic talks with OPEC, which you'll recall was Richardson's Plan A too.)
Davis has two weeks to figure out how to make it until then.