[Congressional Record (Bound Edition), Volume 147 (2001), Part 1]
[Senate]
[Pages 628-631]
[From the U.S. Government Publishing Office, www.gpo.gov]



                      ENERGY CRISIS IN CALIFORNIA

  Mr. MURKOWSKI. I rise today to address the situation in California. I 
want to make sure there is no misunderstanding. We all have a very 
legitimate concern for the plight of California from the standpoint of 
the energy crisis that is underway.
  Yesterday the Secretary of Energy extended the order which requires 
that outside providers of power provide power to the State of 
California for a period of about 2 weeks. This has serious consequences 
because there may be some in California who see this as relief, which 
it is, and believe that relief can continue without any significant 
correction internally within California.
  I do not want to mislead anybody because I am convinced that the 
administration, in issuing this order of 2 weeks, stands firm in its 
statement that it will not extend that beyond 2 weeks, which means 
California is going to have to address a procedure to ensure that 
payment is made for electricity coming into that State.
  I am concerned that the Federal Government has assumed a contingent 
liability by this order because it has ordered the generators to move 
that power into California. It did not address how it was going to be 
paid for. So if the State of California can't pay for it, then there is 
potentially a cost to the Federal Government. By taking this step, the 
Government may well have picked up a liability, perhaps a contingent 
liability. Nevertheless, it is a reality.
  This morning at the Energy and Natural Resources Committee business 
meeting, after discussion with Senator Bingaman and other members, we 
agreed we would hold a hearing next week on the California situation. 
It would bring in the surrounding

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States--Oregon, Washington, Idaho, perhaps Arizona and Nevada--that are 
kind of interconnected and affected.
  We will talk about the Bonneville Power Administration and its role. 
We will talk about Seattle City Light. And we will talk about short-
term and long-term contracts.
  We are going to talk about take-or-pay contracts. We are going to 
talk about the reservoirs at Bonneville's hydroelectric dams are at an 
all-time low, and prospects for adequate power in the Northwest this 
summer when there is a heavy load for air conditioning. We are going to 
talk about the situation of aluminum companies that are now reselling 
their Bonneville power. We will talk about a situation that came about 
as a consequence of the Forest Service's inability to provide sales to 
some of the companies that were generating power from biomass that 
suddenly find they have no biomass, so the powerplants are shut down.
  It is a grave responsibility, and it has come out of a policy of 
ignorance. When I say ignorance, I don't mean to belittle those who are 
responsible for the direction of California's energy, but ignorance in 
the sense that you cannot continue a growing economy, such as 
California has had--it is equivalent to the sixth largest economy in 
the world--where you have increased demands for power without 
increasing generation.
  So California consumers face unprecedented problems, zooming electric 
rates, power shortages. We have two major investor owned utilities on 
the brink of bankruptcy. Some have suggested they have been guilty of 
having price structures that are unrealistic. On the other hand, it is 
hard to believe that they would drive themselves into bankruptcy. I am 
sure that the Governor of California, Governor Davis, wants cheap rates 
in California. The question is, are some of those rates going to be 
underwritten by taxpayers in other parts of the country? Again, we have 
to help California, but California has to help itself.
  Now, in my view, the activities so far in California to correct this 
have been kind of like shifting the deck chairs around on the Titanic--
perhaps for a better view or a more comfortable position. But if they 
don't take real corrective action, the ship is going to sink. The 
question is, what is it going to take with them? The stockholders and 
bondholders in Pacific Gas and Electric and Southern California 
Edison--various teacher unions, and people throughout California who 
have invested in what previously were the highest rated utilities in 
the country--suddenly find themselves questioning whether those 
investments are going to be made good. For all practical purposes, one 
corrective action may be, if indeed the utilities go into bankruptcy, 
is that a Federal bankruptcy judge will dictate the price that 
California consumers are going to have to pay. Now, that is hard ball, 
but that is not too far away from happening. In my own opinion, to a 
large degree California's problems are self-created. They started out 
with a program that they called deregulation, but really wasn't. It is 
kind of interesting to reflect on that because they called it the 
California competition program--a competition enacted by the State 
legislature in 1996, and the implementation of that law really came 
into effect January 1, 1998. What they did, they made a mandatory 
program for California's investor owned utilities, Pacific Gas & 
Electric, Southern California Edison and San Diego Gas and Electric. 
Two-thirds of California consumers are served by these three utilities.
  But the interesting thing is that California made it voluntary for 
its publicly owned utilities to join the State's competition program--
but none of them joined. So the law and the wisdom of the California 
legislature said it is voluntary for the publicly owned utilities, but 
mandatory for the investor owned utilities.
  I am not here to discuss the issue of equity. But the essence of 
California's competition program was to create a vigorous deregulated 
wholesale power market. And once there was a vigorous wholesale power 
market, it would create a deregulated retail power market. That sounds 
good, but the problem is that it never happened on the retail side.
  The key elements of the California program were, a rate freeze on the 
retail price of electricity to consumers until the year 2002, or until 
the stranded costs were paid off. Those are costs associated with, say, 
a nuclear plant that shut down, never paid for, and you have to pay for 
it in the rate structure.
  Now, the Federal Energy Regulatory Commission has the authority to 
regulate wholesale rates. They have seen fit not to put a hard cap on 
wholesale rates. They say it will harm competition. It is kind of 
interesting to note that we have seen a bill introduced that would give 
the authority of FERC to put caps on wholesale rates to the Secretary 
of Energy. My first reaction to that is you are taking the problem from 
an objective group that has some expertise in this area and moving it 
into the political spectrum. I don't know what you really accomplish on 
that. My first inclination is that that is not a solution to the 
problem. That is simply transferring the problem into the political 
realm.
  Now, it is kind of interesting because under the California 
competition program investor owned utilities are required to purchase 
from the wholesale spot market all of the electricity they sell at 
retail to consumers. No long-term contracts. The investor owned 
utilities were not allowed to enter into electricity contracts to hedge 
on electric prices. The investor owned utilities were directed to 
divest their fossil fuel fired powered plants, but allowed to retain 
their nuclear and hydro facilities. So they did not sell their hydro 
and nuclear facilities. They were mandated to do this under the 
California program. The investor owned utilities were directed to 
divest the fossil fuel, but allowed to keep the nuclear and hydro.
  But now some are suggesting that the State of California ought to 
take over the hydro facilities and, in turn, accept the debt 
associated, which is somewhere in the area of $11 billion to $12 
billion. What are you going to do then, have the state run those 
facilities? Can the State do it better than the private sector? I don't 
know. But it is another Band-Aid, in my estimation, that doesn't really 
address the problem.
  One, there is a credit problem in California because you can't pay 
for the power and, B, there is a shortage of generation because the 
demand has exceeded substantially the generating capacity. California 
relied on that power company from outside the State, which is fine up 
to a point; but when the other States' prosperity and economy increases 
and their demand increases, they suddenly look to the old adage that 
charity begins at home. They want to take care of the people around 
them. As a consequence, to depend on outside power is very risky, just 
like it is very dangerous for this Nation to depend so much on outside 
oil. We are now 56 percent foreign-oil dependent in this country. By 
the year 2004, we will be 64 percent dependent on foreign oil, 
according to the Department of Energy. In 1973-74, we had an oil 
embargo. Some people are old enough to remember that. We had lines 
around the block at gas stations. People were outraged, that this 
should not happen. Congress set up the Strategic Petroleum Reserve. We 
were 36 percent dependent on imported foreign oil at that time. The 
parallel is, to what point, what percentage, do you want to be 
dependent on imported energy?
  I ask unanimous consent that I be allowed another 6 minutes.
  The PRESIDING OFFICER. Is there objection?
  Mr. MURKOWSKI. I also ask unanimous consent that when morning 
business is due to expire at 11 a.m., it be extended until 11:15.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  Mr. MURKOWSKI. I appreciate my colleague from Maine accommodating me.
  As I indicated, it is a credit problem. It is also a supply problem.
  It is kind of interesting to see what is happening. People are 
rushing out in

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California to buy generators to generate their own power. I don't blame 
them. What does that do to air quality? There is no clean air 
restriction on that kind of generation, unlike utility-owned 
generation. We are seeing a situation where there is a threat of 
bankruptcy. You have the threat of bankruptcy just in determining what 
the rates are going to be in California. You have convoluted non-
workable deregulation in California. The question is: What is 
California going to do to correct the situation? Action that is overdue 
because this 2-week order has some significant ramifications which are 
going to end.
  I think there are high hopes that California will have addressed the 
problem before the end of the two week period.
  Now we can point fingers. This is not a partisan issue, it is a 
bipartisan issue. The question is, How can we put an end to the 
problem? I think we all learned in Economics 101 that when demand 
exceeds supply, you get shortages and price increases.
  The answer to why California doesn't have enough generation is fairly 
simple. They have gone out of their way to discourage construction of 
new powerplants. The permitting of new powerplants has taken forever. 
They have a severe case of ``not in my backyard'' when it comes to new 
electric powerplants and transmission lines.
  Remember last summer when Pacific Gas & Electric tried to bring 
barge-mounted generators into San Francisco--but environmentalists 
objected?
  And right now a major consumer of electricity in California--the 
high-tech firm called Cisco--is fighting the construction of a new 
powerplant nearby its office building near San Jose.
  For some time now, California has relied on out-of-State generation 
to meet its growing needs.
  As I have said, they did not have to build any new powerplants in the 
State.
  According to the California Public Utility Commission, between 1996 
and 1999, only 672 megawatts of new generation were added to 
California's system.
  But during the same period peak demand increased 5,500 megawatts--
more than 7 times as much.
  You can see this happening. California should have reacted. But the 
political realities obviously dictated to a large degree the lack of 
action, because if had they reacted they would have passed these 
increases, from the standpoint of the purchase price of the generation, 
on to the California consumer--the taxpayer. There is a political 
fallout associated with that.
  Today California's powerplants within the State are capable of 
satisfying only three-quarters of the State's hot day peak demand. The 
remaining one-quarter of California's electricity must be imported from 
outside the State. That is a very dangerous situation. As they say, the 
chickens have finally come home to roost, and California's situation is 
not going to get better anytime soon.
  If California's electrical demand grows at only 5 percent annually, 
as some have projected, California will have to add three 1,000-
megawatt powerplants every single year just to stay even--the 
equivalent of two Diablo Canyon nuclear plants every 6 years. But 
according to the California Energy Commission, no major powerplants 
have been built in California for more than a decade and very little is 
now under construction.
  What is the solution? Is it more regulation? Should we try to turn 
back the clock? The answer is clearly no. Experience has proven that 
government regulation cannot stop the forces of supply and demand. To 
have reasonably priced electricity, you have to have more generation, 
you have to have transmission. The State will probably have to provide 
eminent domain for transmission lines, and we must free the market from 
unnecessary Federal interference.
  Consumers in the State of California, this administration, and the 
FERC must provide the necessary incentives for new generation and 
transmission to be built. Consumers in the State of California, FERC, 
this administration, and Congress must help. We must all be part of the 
solution. And, hopefully, from our hearing in the Energy Committee next 
week we will begin to get some of the answers and recommendations.
  Consumers in California are going to have to shed their ``not in my 
backyard'' mentality. If consumers want power, new powerplants have to 
be built somewhere. The power isn't going to appear magically. New 
transmission lines have to be built. It is unfair for California to ask 
people in other States to build powerplants necessarily to satisfy 
California's demand.
  Consumers are also going to have to pay for the power they need. 
Somebody has to pay for it. We are going to have to do a better job 
encouraging conservation. But there has to be, if you will, some kind 
of a carrot and stick. If the consumers are encouraged to conserve and 
buy a new refrigerator that uses less energy, they have to be motivated 
to do that because of the increased costs to the consumer. It has to be 
made worth his or her while, whether it be an air-conditioning unit or 
some other item.
  The government of California is going to have to take leadership in 
building new generation of transmission facilities, expediting permits, 
and so forth. They need to expedite those permits and the siting so 
that the power will be there when it is needed.
  In California, for example, 67 percent of the electric powerplants 
are more than 20 years old, and 37 percent are more than 40 years old.
  California must also allow consumer prices to rise to reflect the 
cost of the power they are consuming. I think California must also 
allow consumer prices to rise to reflect the costs of the power they 
are consuming.
  FERC must provide the necessary incentives for new generation and 
transmission to be built and act more quickly than they have under the 
previous administration. They have to make decisions to get the facts, 
and to protect the public. But you have to make the decision.
  This administration must support new generation of transmission and 
make sure that existing generation continues and is not prematurely 
shut down.
  There are impediments to competition. For example, it is high time 
that PUHCA and PURPA are repealed. We need to find ways to allow 
construction of new transmission lines. We need to enact legislation to 
protect the reliability of the grid.
  Finally, the State of California made systematic decisions over a 10-
year period not to build new powerplants in California while at the 
same time they watched their power consumption grow. The State made 
deregulation decisions that didn't remove regulations, it simply 
changed the regulations, and now, in the face of mounting debt and 
possibly utility bankruptcy, the State refuses to allow rate increases 
to pay for expensive non-utility power.
  While it would be unrealistic for the State of California to ask the 
rest of the Nation to pay for its power, notwithstanding the fact that 
California consumers enjoy--this is a fact--California consumers today 
enjoy some of the lowest monthly bills in the United States, California 
needs to make a good-faith effort to accept responsibility in this 
crisis. It needs to address its credit problems. It must not pursue 
policies that appear to be intended to bankrupt utilities rather than 
solve those problems. Then the Federal Government can look at its role 
in providing assistance. But it is not up to the Federal Government to 
bail out California from a series of bad decisions. And for the long 
term, the State needs to be looking at building powerplants and 
transmission facilities to meet its power needs. The situation in 
California demonstrates that our energy future is in our hands 
collectively--the State of California first.
  We can take the path of least resistance, as California did, and we 
can suffer the consequences. Or we can take the actions necessary to 
ensure our energy future--oil and natural gas as well as electricity.
  That is why President Bush and we are seeking to revitalize our 
energy industry and to formulate a long-term energy strategy that will 
ensure that

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the United States has the energy we need to fuel our economy.
  I thank the Chair. I thank my friend from Maine for allowing me 
additional time.
  The PRESIDING OFFICER (Mr. Bunning). The Senator from Maine is 
recognized.
  Ms. COLLINS. I thank the Chair.
  (The remarks of Ms. Collins and Mr. Kerry pertaining to the 
introduction of S. 162 are located in today's Record under ``Statements 
on Introduced Bills and Joint Resolutions.'')

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