Statement by U.S. Senator Dianne Feinstein and
Governor Gray Davis on the Energy Crisis in California
December 13, 2000

“The declaration of a statewide Stage 3 energy emergency in California in the middle of December and 30 Stage 2 emergencies since May is not only unprecedented, but indicates that these shortages can happen at virtually any time.

Additionally, the price of power has risen astronomically on the spot market and may very well bankrupt two of California’s major utilities: Pacific Gas & Electric and Southern California Edison.

We are united in asking that the Federal Energy Regulatory Commission (FERC) establish an immediate region-wide wholesale price cap to stop the bleeding of electricity from California until stability can be returned to the market. We are also calling on FERC to step in and mandate reasonable long-term contracts between privately owned electricity generators and utilities.

One of the reasons for the absence of adequate power in December in California is the fact that energy producers are now receiving much higher rates for their energy in nearby states without caps. This clearly highlights the problem with a cap that only applies to California and reinforces the need for a region-wide price cap.

Because of California’s size, the state is ripe for electricity price gouging. Unlike a small state that utilizes very little energy, California’s energy requirements are large and constant. Right now, growers are deeply concerned in the event of a freeze tonight they will not be able to protect their crops, particularly citrus.

We have also received dozens of letters from employees who have lost their jobs due to employers’ inability to either provide electricity or cover their costs of electricity, particularly now in combination with escalating natural gas prices. Additionally, as more computers come online every day and remain on, the demand for energy is rising.

Last week, FERC dropped the hard wholesale cap and power costs have soared to as much as $1,400 per megawatt hour on the spot market. That means that a supplier has to buy at that price, but can only sell that amount at about $64. And so they cannot recover costs, and this is what is driving Southern California Edison and PG&E closer to bankruptcy.

One of the reasons for inadequate power in December is the fact that energy producers are selling power generated in the State to out-of-state customers.

It is estimated that at least 4,000 to 5,000 megawatts leaves the State daily this time of the year.

Additionally, one-third of the generating plants have been down for maintenance. The utilities tell us that before the system was deregulated, maintenance was scheduled and planned to avoid these shortages. Clearly adequate scheduling and planning has not taken place under California’s abrupt deregulatory scheme.

We are very pleased that the California Public Utilities Commission has permitted bilateral contracting which lock in power at much more reasonable rates. And now, we are asking FERC to mandate this as well for the private generators.

Two of California’s major investor owned electrical utilities are in the process of having their credit ratings downsized, their stocks have plummeted and they have been unable to gain adequate financing because of the out-of-control situation in the State.

We have implored FERC to respond to this crisis so that California’s terrible dependence on spot prices can end. Had these contracts been in place, today's problem may have been averted.

It is clear to both of us that there is little price elasticity for electricity. It has become a staple of life. People cannot do without electricity in the modern world. And people and businesses are limited in what they can pay for it.

It is our strong belief that unless both FERC and the State PUC take strong action, the lights throughout major areas of California may well go out.”