[Congressional Record (Bound Edition), Volume 147 (2001), Part 5]
[Senate]
[Pages 6218-6222]
[From the U.S. Government Publishing Office, www.gpo.gov]



                      ENERGY CRISIS IN CALIFORNIA

  Mrs. FEINSTEIN. Mr. President, I will use my time in morning business 
to update the Senate on the status of the electricity crisis in 
California.
  April is typically the best time of year for California when it comes 
to meeting its energy needs. Winter has ended in northern California, 
and the southern part of the State has not yet begun to get hot. Thus, 
the demand for energy is low throughout the State, and California has 
always had more than enough power to meet its needs. As a result, 
electricity is usually very cheap. So this is as good a time as any to 
provide an update of where the State is and to see how this year is 
different from all other years. The last ten months provide a gloomy 
picture of what may well happen this summer.
  The average cost of electricity for California this month has been 
about $300 a megawatt hour. This is more than 10 times higher than the 
average for last April, right before the crisis began. The average 
price for electricity in the States of Washington and Oregon is even 
higher, and the price for electricity bought in the futures market for 
this summer is now averaging more than $750 a single megawatt hour.
  The State Department of Water Resources, which since January has been 
purchasing all of California's power needs, has now spent $5.2 billion 
purchasing power just in the first months of this year. It is spending 
at a rate of $73 million a day. This is having a serious financial 
impact on the State's credit standing. Yesterday's Standard & Poor's 
downgraded the State's credit rating two notches from AA to A-plus.
  It is important to point out that the money the State is spending to 
buy electricity is gone. It does not buy a textbook or a computer for a 
school. It won't repair a bridge or road. It will not build a highway. 
It doesn't go for law enforcement. It is money that simply disappears. 
As a result, the State could well be out of money.
  At the same time, the Northwest is experiencing what may well be its 
driest year on record. Consequently, California will not be able to 
rely on the 7,000 to 8,000 megawatts of power it typically imports from 
the Northwest in the summer--usually enough for 7 to 8 million homes. 
There will not be enough power in the Northwest to even meet its own 
energy needs this summer.

[[Page 6219]]

  Meanwhile, natural gas prices in most of the United States are about 
three times higher than their historic average, and in southern 
California they are eight times higher. Independent analysts, such as 
the Brattle Group, have raised significant questions about malfeasance 
on the part of the few companies that have an oligopoly on the natural 
gas pipelines. Meanwhile, it has been more than 5 months since the 
Federal Energy Regulatory Commission, the FERC, found that electricity 
rates were ``unjust and unreasonable'', and still they have not acted 
to fulfill the mandate of the Federal Power Act which directs the FERC 
to set reasonable rates when the market is not functioning properly.
  Allow me to read from the language of the Federal Power Act.

       Whenever the Commission, after a hearing had upon its own 
     motion or upon complaint, shall find that any rate, charge, 
     or classification, demanded, observed, charged, or collected 
     by any public utility for any transmission or sale subject to 
     jurisdiction of the Commission, or that any rule, regulation, 
     practice, or contract affected such rate, charge, or 
     classification is unjust, unreasonable, unduly discriminatory 
     or preferential, the Commission shall determine the just and 
     reasonable rate, charge, classification, rule, regulation, 
     practice, or contract to be thereafter observed and in force, 
     and shall fix the same by order.

  That is the Federal Power Act. The Federal Power Act very clearly 
says: FERC, once you find that rates are unjust and unreasonable, you 
must then fix reasonable rates or charges.
  The FERC has not done its duty.
  The problems in California began in 1996, when the State became the 
first to pass a comprehensive energy deregulation bill. That bill was 
known as AB 1890. The bill passed very quickly at the end of the 
legislative session. It enjoyed nearly unanimous bipartisan support.
  AB 1890 was supposed to increase supplies of energy and decrease 
prices for consumers, but the exact opposite happened. The bill assumed 
that increases in energy supply, competition, and efficiency would 
drive down energy prices. This assumption turned out to be badly 
flawed, and as a result the State was burned by several provisions of 
the bill.
  First, the bill forced the utilities to purchase at least 95 percent 
of their electricity in the day-ahead and spot market and did not 
permit utilities to hedge their bets with long-term, bilateral 
contracts. That is a huge problem because if 95 percent of the power is 
bought on the spot market, and those spot market prices go up, the 
State is in the pickle that it is in today.
  Second, the State forced its investor-owned utilities to sell off 
their generating assets, allowing out-of-State energy generators to 
purchase the plants and sell the electricity back to the utilities at 
market rates.
  Let me give you an example of that. For Southern California Edison, 
when it divested of a generating facility, at the time Southern 
California Edison was selling its power at $30 a megawatt hour. As soon 
as it sold it to a generating facility, the out-of-State generating 
facility turned around to sell the power back to Southern California 
Edison at $300 a megawatt hour. That is part of the problem.
  Third, the bill immediately deregulated wholesale prices, but left 
retail rates regulated until March of 2002, or until a utility has sold 
off all of its generating units, creating a half-regulated, half-
deregulated system. So the free market that we heard so much about 
can't function as a market should because it is broken. The price on 
the wholesale end is deregulated. The utility cannot pass that price 
through to the consumer--or has not been able to.
  Incidentally, that is going to change because the State will pass 
more than a 30-percent rate increase that should go into play in either 
May or June of this year. So some of that will be corrected.
  Fourth, the State set up a power exchange as a product of that bill 
that aimed to attract sellers by promising the highest clearing price 
of energy to all bidders. So no matter what you bid your power in for, 
you are guaranteed the highest price paid to any other bidder. That 
proved to be fatal.
  Energy suppliers realized that simply withholding power from the 
power exchange and from the California energy market would drastically 
drive up the prices. And they did.
  Spot prices increased dramatically. The costs could not be passed on 
to consumers. The State's largest investor-owned utility filed for 
bankruptcy, and the State's second largest investor-owned utility, 
Southern California Edison, remains on the brink of bankruptcy. The 
result has been this crisis, and this crisis could well become an 
economic disaster not only for California, but for the entire West.
  Now, what has the State done? I am the first to admit that California 
has been slow to address the crisis. I think part of this was an actual 
disbelief that the situation could have gotten this bad this fast. Let 
me speak about supply because there had not been much supply--very 
little supply, less than 2,000 megawatts actually--added to the State's 
power supply in the last decade. But since the first of the year, the 
State has licensed and approved 14 new gas-fired plants and 8 new 
peaker plants, which will all be on line within the next 2 years. The 
State expects to add 9,810 megawatts--that is enough power for 9.810 
million households--and have that power on line by the summer of 2003. 
And the State, in total, will add 20,000 megawatts, enough to power 20 
million homes, and have that on line by the end of 2004.
  I ask unanimous consent to have printed in the Record a chart which 
lists the plants that have been approved, plant by plant, by the State, 
and the expected dates they will come on line.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                      CALIFORNIA POWER PLANTS COMING ONLINE
----------------------------------------------------------------------------------------------------------------
              Plant name                       Capacity             Location--(Peaker?)           Online by
----------------------------------------------------------------------------------------------------------------
By the end of this summer:
1. Alliance Century Substation........  40 MW.................  Colton (peaker)...........  ....................
2. Alliance Drews Substation..........  40 MW.................  Colton (peaker)...........  ....................
3. Indigo Energy Facility*............  135 MW................  Palm Springs (peaker).....  ....................
4. Larkspur Energy Facility*..........  90 MW.................  San Diego County (peaker).  ....................
5. Ramco Chula Vista..................  57 MW.................  San Diego County (peaker).  ....................
6. Calpine King City..................  50 MW.................  Monterey County (peaker)..  ....................
7. Hanford Energy Park................  95 MW.................  Kings County (peaker).....  ....................
8. Sutter Power*......................  500 MW................  Sutter County.............  ....................
9. Los Medanos*.......................  559 MW................  Contra Costa County.......  ....................
10. Sunrise Cogeneration*.............  550 MW................  Kern County...............  ....................
11. United Golden Gate*...............  51 MW.................  San Mateo.................  ....................
                                       ------------------------
      Subtotal........................  2,167 MW..............                              ....................
                                       ========================
From November 2001 to June 2003:
12. La Paloma*........................  1,048 MW..............  Kern County...............  Nov. 2001
13. Moss Landing*.....................  1,060 MW..............  Monterey..................  June 2002
14. Delta Energy Center*..............  880 MW................  Pittsburg.................  July 2002
15. Elk Hills*........................  500 MW................  Kern County...............  July 2002
16. High Desert*......................  720 MW................  Victorville...............  Winter 2002
17. Western Midway-Sunset*............  500 MW................  Kern County...............  March 2003
18. Blythe Energy*....................  520 MW................  Riverside County..........  March 2003
19. Mountainview*.....................  1,056 MW..............  San Bernardino............  April 2003
20. Hanford*..........................  99 MW.................  Kings County..............  April 2003
21. Otay Mesa*........................  510 MW................  San Diego County..........  April 2003

[[Page 6220]]

 
22. Pastoria*.........................  750 MW................  Kern County...............  June 2003
                                       ------------------------
      Subtotal........................  7,643 MW..............                              ....................
                                       ========================
      Total...........................  9,810 MW..............                              ....................
----------------------------------------------------------------------------------------------------------------
*Approved by the California Energy Commission.

  Mrs. FEINSTEIN. Mr. President, I tell you that because the problem is 
in this initial period; the problem is going to be for the next 2 
years. After that, it is expected that the State will have adequate 
power supply to begin to create a functioning free market.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mrs. FEINSTEIN. I ask unanimous consent to proceed for another 10 
minutes.
  Mr. DOMENICI. Mr. President, not desiring to object, I just want to 
make sure that I follow that time and that there is time for me. I was 
scheduled at 10:15 was my understanding.
  The PRESIDING OFFICER. Under the previous order, the time from 10:15 
to 11 was under the control of Senator Thomas.
  Mr. DOMENICI. I am pleased to yield 10 minutes to the Senator from 
California so long as 10 minutes is added to our side.
  The PRESIDING OFFICER. Without objection, the Senator is recognized 
for an additional 10 minutes.
  Mrs. FEINSTEIN. I thank the Senator from New Mexico for his 
generosity.
  Mr. President, the State is adding additional power. The problem 
comes in the next 2 years. What can be done and what is the appropriate 
Federal role in the next 2 years? I submit that the appropriate Federal 
role is to provide a period for liability and stability until the State 
has brought on line enough additional power to have a functioning free 
market where supply and demand functions in an appropriate manner.
  The State has also planned an $850 million conservation package that 
will aim to reduce energy demand across the board by 10 percent or 
more. So in the immediate future, conservation is the best way for 
California to avoid days of rolling blackouts this summer. But, in my 
opinion, it is going to be impossible to achieve enough conservation to 
avoid all blackouts.
  Additionally, the Governor of California has issued a series of 
executive orders authorizing increased output at existing facilities 
and ensuring that environmental regulations are not posing any barriers 
to maximum energy production.
  I ask unanimous consent to have printed in the Record at this time a 
letter from Winston Hickox, the Secretary of the California 
Environmental Protection Agency, asserting that there are no energy 
plants idling in the State because of environmental reasons, with the 
exception of those State plants that are being retrofitted so that they 
can operate cleaner, more efficiently, and more often this summer.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                              State of California,


                              Environmental Protection Agency,

                                   Sacramento, CA, March 28, 2001.
     Hon. Dianne Feinstein,
     U.S. Senate, Hart Senate Office Building, Washington, DC.
       Dear Senator Feinstein: It has been alleged that air 
     quality regulations are a major contributor to California's 
     current power shortage crisis and are constraining energy 
     supplies. In his March 22, 2001, testimony before the House 
     Energy and Air Quality Subcommittee (enclosed), Dr. Alan 
     Lloyd, Chairman of the California Environmental Protection 
     Agency's Air Resources Board (ARB), refuted those statements. 
     The situation in California has not changed. No essential 
     power generation is off-line due to air quality constraints.
       As you know, on February 8, 2001, Governor Gray Davis 
     issued a series of Executive Orders to comprehensively 
     address power generation. The Orders boosted generating 
     capacity by authorizing increased output at existing 
     facilities, accelerated power plant construction, streamlined 
     the review process for new facilities, and provided 
     incentives for distributed and renewable generation.
       California regulatory agencies are quickly and successfully 
     expediting permits for new generating units. Since April 
     1999, nine major power projects (including one expansion) 
     totaling an additional 6,300 megawatts (MW) have been 
     approved. Six plants are under construction with four 
     expected to be on-line this year between July and November. 
     Another 14 projects (new sitings and expansions) are under 
     review for an additional 7,700 MW of capacity. All of these 
     projects include the necessary environmental offsets and 
     required emission controls. The State has also realized the 
     need for short-term supply and is expediting permits for 
     smaller peaking plants. These peakers will be on-line for the 
     2001 summer peak season.
       With regard to existing capacity, the ARB is continuing its 
     coordination with the California Independent System Operator 
     (Cal-ISO), local air districts, California Energy Commission 
     (CEC), and plant personnel to identify generating units that 
     may be constrained by air permit limitations and to remove 
     barriers to summer time operation. Governor Davis' Executive 
     Orders dealt with this matter as well, authorizing additional 
     compliance mechanisms to keep both power generation and 
     environmental protection on track. The U.S. Environmental 
     Protection Agency, Region IX, is working closely with 
     California regulatory agencies and has indicated support for 
     this approach.
       This spring, a number of generating units are off-line for 
     routine maintenance. Many of them are taking advantage of 
     this downtime--and available labor--to install air pollution 
     controls. Please note, these installations have been 
     carefully coordinated with Cal-ISO. They were only authorized 
     upon a finding that sufficient supplies and reliability of 
     the power grid system would be maintained.
       In summary, air quality agencies realize the seriousness of 
     the State's energy situation and have been working 
     diligently, and effectively, to site new power plants and 
     increase existing capacity while still addressing air quality 
     concerns. Existing state and federal laws provide significant 
     flexibility to make these adjustments. Governor Davis' 
     Executive Orders provide additional means and flexibility to 
     keep generation on-line and quickly permit new power plants. 
     The air quality regulatory system works. We believe that 
     California can increase energy supply while, at the same 
     time, protecting public health and the environment. 
     California citizens expect nothing less.
           Sincerely,
                                                Winston H. Hickox,
                                                 Agency Secretary.
       Enclosure.

  Testimony of Dr. Alan C. Lloyd, Chairman, California Air Resources 
 Board, Before the House Subcommittee on Energy and Air Quality, March 
                                22, 2001

       Thank you, Mr. Chairman and Members of the Subcommittee. My 
     name is Alan Lloyd, and I serve as Chairman of the California 
     Air Resources Board (ARB). I welcome the opportunity to 
     provide an overview of California's electricity challenge 
     with respect to air quality issues.
       Over the past several months, Governor Davis has embarked 
     on a comprehensive strategy to address the electricity 
     situation in California. One of the major components of the 
     State's plan centers around increasing energy supplies by 
     expediting the construction of power plants and other sources 
     of generation. Specifically, we are in the midst of an 
     aggressive effort to bring 5,000 megawatts on line by this 
     summer and 20,000 megawatts by 2004 in order to meet 
     anticipated energy demand this summer and beyond.
       Mr. Chairman, my main message is this: We can accomplish 
     this goal within the existing framework of California's air 
     quality regulations. Furthermore, environmental laws do not 
     pose a barrier in terms of our ability to bring new 
     generation on line and ensure that existing power plants can 
     operate at maximum capacity. In short, we can increase energy 
     supply in an expedited manner while at the same time 
     maintaining our commitment to the environment.
       Air pollution controls have been identified as a major 
     contributor to California's current energy challenge. That 
     perception is not accurate. Air quality issues are a very 
     small part of the State's overall power production problem. 
     Where air quality rules have affected or might have 
     potentially affected the ability to create essential power, 
     state and local regulators have moved swiftly and 
     successfully to keep needed plants on line. Simply put, no 
     essential electricity generation has been curtailed due to 
     air emission limitations. California's programs to protect 
     public health are not a major factor in the electricity 
     shortages experienced to date.

[[Page 6221]]

       No single factor can explain the current energy crisis. The 
     matter is far too complex. However, it can be said with 
     certainty that environmental laws are not to blame. Under 
     existing environmental programs and the policy direction of 
     Governor Davis, state and local air regulators have had, have 
     used, and will continue to use, the considerable flexibility 
     included in California's regulatory programs to ensure that 
     power generating sources remain in operation under 
     environmentally sound conditions. While the review process 
     and decision making timelines have been streamlined, 
     substantive environmental standards and mitigation 
     requirements have not been compromised.
       Over the last several months, there has been an increasing 
     focus on environmental laws as contributors to the energy 
     crisis. This concern has taken two distinct forms:
       1. The charge that environmental laws have prevented 
     maximum utilization of existing electrical generation 
     facilities; and
       2. The allegation that environmental laws have prevented 
     bringing new electrical generation facilities online.
       There have also been charges that the State of California 
     has not be responsive enough in addressing the power issues, 
     and has not been willing to take the extraordinary actions 
     needed to deal with how environmental requirements have 
     affected electricity production.
       Mr. Chairman, I submit to you that these statements have 
     diverted attention from the true and complex causes of the 
     current energy situation. As a result, they have not 
     contributed to productive efforts to resolve it. I would like 
     to briefly address each of these issues.
       Although existing laws and regulations provide mechanisms 
     for addressing our power needs, they can also require 
     substantial time and process. Governor Davis, through the 
     exercise of his emergency powers under state law, has 
     significantly expanded state and local agencies' ability to 
     apply flexibility and common sense to act quickly to ensure 
     that power generation will continue.
       By using his emergency powers and issuing Executive Orders, 
     Governor Davis has added substantially to the state's ability 
     to deal with our current energy situation. Executive Orders 
     D-24-01, D-26-01, and D-28-01 ensure that where statutory and 
     regulatory impediments exist--related to either the continued 
     operation of an existing plant or the construction of a new 
     clean facility--they will be swiftly addressed and resolved. 
     The Executive Orders also provide that these actions will be 
     accomplished without sacrificing needed air quality 
     protections.
       State and local agencies now have both the direction the 
     authority they need to expeditiously review and approve 
     permits. Under the Governor's Executive Orders, they are:
       Allowing the continued operation of existing facilities 
     that might otherwise face limits on hours of operation.
       Expediting the review and permit approval for new peaking 
     facilities that have acquired the needed control technology 
     and mitigation, but need rapid processing to come on line 
     quickly.
       Enabling new peaking plants to obtain emission credits 
     needed for permitting through the state, rather than 
     arranging for them through private transactions.
       Completing permit reviews and approvals for new large 
     facilities in as little as four months to enable new capacity 
     to begin construction expeditiously.
       The Governor's Executive Orders maintain all substantive 
     environmental protections. For example, existing units must 
     continue to utilize all of the required emission control 
     equipment, and must provide funds to mitigate the impact of 
     their increased hours of operation. Similarly, new units must 
     utilize the best available control equipment and must 
     continue to provide emission reduction credits to mitigate 
     their emission increases. Permitting will take less time, but 
     will not be less protective.
       All central station electrical generating facilities are 
     permitted by local air pollution control districts under 
     rules incorporated in the State Implementation Plan (SIP). 
     These permits reflect operator-provided information, 
     including factors such as intended hours of operation and 
     fuel type. This information has a direct bearing on the 
     facility's anticipated emissions. Based on operator-provided 
     data, emission limits are established through the air 
     permits. It is these operator-defined limits that have been 
     at issue. In many cases, these facilities are now in a 
     position of having, or wanting to generate additional 
     electrical power in excess of the time periods assumed in the 
     original permitting process.
       Despite this unanticipated high level of operation, through 
     the joint efforts of local air districts, the Air Resources 
     board (ARB), and the California Energy Conservation and 
     Development Commission (CEC), as well as the assistance of 
     the U.S. Environmental Protection Agency (U.S. EPA), needed 
     electrical generation has not been interrupted. State law and 
     local regulations provide several means to address permit 
     limitations without disruption of electrical generation or 
     unmitigated damage to air quality.
       The ARB has assisted local air districts in addressing any 
     potential issues arising out of their efforts to maintain 
     power generation. ARB has maintained close coordination with 
     the U.S. EPA to ensure that state and local response to the 
     energy situation does not raise concerns at the federal 
     level. We have approached the electricity shortage with an 
     environmentally sound balance of need awareness and impact 
     concern. U.S. EPA has indicated its understanding of the 
     complexities California is facing and has indicated a 
     continued willingness to assist.
       At the Governor's direction, the ARB and air districts have 
     been able to balance the State's energy needs with the 
     public's right to clean air. Existing air quality regulations 
     have provided the flexibility to address expeditiously the 
     unexpected power demands of the State without material harm 
     to air quality. These accommodations have been completed in 
     very short time frames and have ensured continued power 
     generation. This flexibility has been used numerous times 
     over the last six months to enable continued power 
     production. These have affected both large and small plants 
     are summarized in Attachment 1.
       The additional grants of authority to the Governor under 
     the Emergency Services Act augments existing statutes and 
     increases the ability of state and local agencies to work 
     together in significantly reduced time frames. Whether it is 
     providing for an existing source to operate beyond its 
     permitted hours of operation of streamlining certification of 
     new peaking sources, the Governor's emergency Executive 
     Orders provide even greater flexibility in responding to 
     source specific generation issues than previously existed.
       All new proposed power plants must be constructed and 
     operated in compliance with applicable federal, state, and 
     local air pollution requirements. Within California, the 35 
     local air districts are responsible for regulating emissions 
     from stationary sources, including power plants. At the state 
     level, ARB is the agency charged with coordinating efforts to 
     attain and maintain federal and state ambient air quality 
     standards and comply with the requirements of the federal 
     Clean Air Act. To this end, ARB coordinates the activities of 
     all the districts in order to comply with the Clean Air Act.
       Some have cited California's environmental laws as the 
     reason new power generation has not been built in recent 
     years. However, a review of CEC data demonstrates otherwise. 
     Since April 1999, CEC has approved 13 major power projects 
     (including one expansion) totaling over 8,400 MW of 
     additional capacity. Six of these plants are under 
     construction and four of those six are expected to be on line 
     this year, with start dates spanning from July through 
     November. Another 15 projects (new sitings and expansions) 
     are currently under review for an additional 6,700 MW of 
     capacity. Lastly, there is still an additional 7,960 MW of 
     capacity that has been publicly announced and for which the 
     CEC anticipates receiving applications this year.
       Some have also argued that costs of compliance with air 
     quality regulations are too substantial and must be relaxed 
     to achieve needed power generation. This argument is also 
     flawed. Today, approximately 15,000 MW of new electrical 
     generation has either been approved or is in the licensing 
     process. All of these projects have included the necessary 
     environmental offset packages and have incorporated all 
     required emission controls. Compliance with these 
     requirements has proven to be both technically and 
     economically feasible.
       To bring new, additional peaking facilities on line, 
     Governor Davis has created both a streamlined review process 
     and an ARB-operated emission offset bank. These actions will 
     ensure that all necessary peaking facilities can also be 
     sited.
       The CEC's siting process is designed to take 12 months. 
     However, a number of factors, other than environmental 
     regulations, have recently influenced individual project 
     timelines. Over the last two to three years, the actions of 
     local activists, businesses, and others have slowed the pace 
     of some projects. In fact, power generators themselves have 
     utilized the siting process to hold up the licensing of a 
     competitor.
       Since 1997, competing companies have intervened in 12 of 
     the 21 projects proposed for licensing. Their participation 
     has slowed the process in at least four cases.
       Constraints on electrical generation capacity from central 
     station powerplants have caused increased interest in the use 
     of distributed generation (DG). DG is electrical generation 
     at or near the place of use. Governor Davis supports 
     legislation action that will provide incentives for 
     distributed generation. Last September, the Governor signed 
     Senate Bill 1298, which directs ARB to establish a 
     certification program and adopt uniform emissions standards 
     and general air quality guidelines for DG technologies. By 
     law, this program must be in effect by January 1, 2003. ARB 
     is on a fast track and expects to complete this December--
     over a year ahead of schedule.
       As the foregoing demonstrates, it is not environmental 
     regulation that has prevented the creation of additional 
     power generation. Rather, many factors have contributed to 
     the current crisis. Among those is also the fact that market 
     participants can and do manipulate the electrical power 
     market by

[[Page 6222]]

     withholding capacity in order to maximize their price of 
     electricity.
       Even the Federal Energy Regulatory Commission (FERC) 
     agrees. Although it found insufficient evidence of market 
     manipulation by any individual market participant: ``. . . 
     there was clear evidence that the California market structure 
     and rules provide the opportunity for sellers to exercise 
     market power when supply is tight and can result in unjust 
     and unreasonable rates under the FPA . . . we reaffirm our 
     findings that unjust and unreasonable rates were charged and 
     could continue to be charged unless remedies are 
     implemented.''
       The Air Resources Board is continuing its efforts to ensure 
     that California has the maximum electrical power output 
     possible, while still protecting public health and mitigating 
     any adverse effects of increased electrical output. This is 
     being done within the confines of existing law as recently 
     expanded through the Governor's Executive Orders. To quote 
     Governor Davis, California is demonstrating that we can cut 
     red tape, build more power plants and continue to protect the 
     environment.
       Our State's history reflects a pattern of success even in 
     the face of unparalleled challenges. California, the most 
     populous state in the nation, has made incredible strides in 
     improving air quality and protecting public health. At the 
     same time, the State has enjoyed immense population and 
     business growth. During this current energy situation, 
     California will maintain its record of achieving a balance 
     among all the issues to ensure that a reasonable and 
     successful solution is achieved.
       In sum, the air quality regulatory system works. The 
     Governor's utilization of his emergency powers to expedite 
     the process of power siting while maintaining environmental 
     standards confirms that California can maintain its 
     environmental and economic objectives.
       Thank you, Mr. Chairman, for the opportunity to testify 
     this morning.

  Mrs. FEINSTEIN. Mr. President, the point I am trying to make is that 
there is no environmental law that is holding up either the approval or 
the functioning of any generation facility in the State of California. 
Also, I have written the CEOs of all of the energy generators that sell 
power to California and I have confirmation of this. I have not heard 
of one single example that contradicts Secretary Hickox's statement. So 
I believe that California is really doing all it can right now to 
maximize energy supply, to reduce its demand, but it is still not 
likely to be enough for the summer.
  Now, this summer we are projected to have a shortfall on a warm day, 
with all plants operating, of 2,000 megawatts. On a hot day, with some 
plants down, the shortfall is estimated to be 10,000 megawatts. That 
could well be a serious disaster. Because hydropower in the Northwest 
is also low, there will also be shortages in other Western States as 
well. Our State has already experienced several days of rolling 
blackouts, and when a blackout hits, it means traffic lights go out, 
elevators stop, fuel pumps are down, food begins to rot, and production 
stops. The economic losses are measured in billions, and there well 
could be loss of life.
  Let me put price on the table. This chart shows that in 1999 the 
total cost for energy in the State of California was $7 billion. In the 
year 2000, those costs became $32 billion. The cost predicted for 
energy to the State of California in 2001 is $65 billion.
  Look at this cost jump in 3 years. This is the problem--this 
deregulated wholesale market has run amok, and there are no controls. 
If the FERC has found these prices to be unjust and unreasonable and 
refuses to regulate, what happens this year with these prices and no 
regulation? So the situation we are in is inordinately serious.
  I want to make a couple of points about natural gas. Natural gas 
stocks are low everywhere, and the price for natural gas for most of 
the country is averaging about 3 times more than the historic average. 
However, in Southern California, the prices are 8 to 9 times higher. 
CN&H Sugar, a refiner in Crockett, CA, generally pays about $450,000 a 
month for its steam generated through natural gas.
  During the peaks of this past year, $450,000 a month has risen to $2 
million a month. That plant can employ 1,000 to 1,200 people. That 
plant cannot continue to operate under these conditions.
  There is a real problem in the transportation costs of natural gas 
because they are not transparent and because profits are hidden. The 
transportation of natural gas, the cost of moving gas from, let's say, 
San Juan, New Mexico, to San Diego has always been regulated. When it 
was, that cost was about 70 cents per decatherm.
  If natural gas is selling for $5 in San Juan and it costs 70 cents to 
transport it to southern California, when it gets to southern 
California it should be selling for no more than $5.70.
  The price of natural gas today in San Juan, NM, is $4.80. However, 
the price in southern California today is $14.71. In northern 
California it is $9.59. Something is clearly wrong. This price need be 
no more than $6 per decatherm, not $14.71.
  In February of 2000, the FERC decided to experiment, and it removed 
the cap on the transportation of natural gas for 2\1/2\ years, 
believing the market would actually drive down the price. Clearly, the 
opposite happened. The absence of transparency allowed companies to 
withhold parts of that natural gas transportation pipeline just for the 
purpose of increasing prices, and prices have risen.
  Senator Gordon Smith and I, along with Senator Bingaman, Senator 
Cantwell, Senator Murray, and Senator Lieberman, introduced legislation 
yesterday directing FERC to do its job. The legislation says that since 
you, FERC, have found the prices to be unjust and unreasonable, you 
must now do your job and you must set either cost-based rates on a 
temporary basis or a rate cap on a temporary basis for the western grid 
within 60 days.
  It requires that those costs must be passed on to the consumer in a 
manner that the State believes just. The cost can be staggered over 
years and passed on through real-time pricing, tiered pricing, or by 
setting a baseline, but it must be passed on, again, to create a 
functioning marketplace.
  The bill also requires that all future orders to sell natural gas or 
electricity to an affected State must include a reasonable assurance of 
payment.
  We believe this is a bill that must be passed by this body. The 
Energy Committee has had two hearings on the subject, and I am hopeful 
this body will pass this bill in a timely manner. The inability or 
failure to do so I think is going to create a human and an economic 
disaster in the Western States come summer because these costs, not 
only of natural gas but electricity, in the hot months are going to be 
serious and extraordinarily high.
  I thank the Chair for the opportunity to give this status report. I 
end by particularly thanking Senator Smith of Oregon. He has worked 
with me in a bipartisan way. He has gone with me to see members of the 
committees on the House side. He has stood very solid and steady in 
support of this legislation. I am very proud to have him as a major 
cosponsor. I also thank the Senators from the great State of Washington 
and the Senator from Connecticut who also recognize what this problem 
is and are determined to do something about it.
  I yield the floor.
  The PRESIDING OFFICER. Under the previous order, the time until 11:10 
a.m. shall be under the control of the Senator from Wyoming, Mr. 
Thomas, or his designee.
  The Senator from New Mexico.
  Mr. DOMENICI. Mr. President, as a designee, I ask that I be permitted 
to speak for up to 10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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