Energy Policy in the 106th Congress   Senators' Statements   Witness Testimony 

Senate Hearing on California Power Crisis (2-2-01)

Bottom Line
This hearing was called to discuss the California electricity crisis, which reaches beyond the California border and into other western states.  Three panels of witnesses presented their views on the origin of the problem, potential remediation measures, and the implications that the crisis has for the west as well as the entire country.  The hearing was well attended by committee members, the public, and the media.  Testimony was heard from utility representatives of both investor and privately owned firms, energy industry experts, and financial consultants.  They agreed that the structure of the California electricity market was going to have to change in the long term to become totally deregulated or reregulated.  Potential short-term solutions were discussed in detail due to the threat of more severe shortages of power during the summer months, a threat heightened by drought conditions for much of the state.  Senators and panelists both stressed the need for the public to understand that electricity is not generated by, as stated by Sen. Gordon Smith (R-OR), "flipping a light switch."


Senate Energy and Natural Resources Committee
January 31, 2001
"California Electricity Crisis: Implications for the West"

Committee Member Statements
Chairman Frank Murkowski (R-AK) opened the hearing with a warning that as bad as the energy situation in California is, it may get worse, especially during summer when air conditioners are turned on.  He asserted that California's problem is not an isolated one; it is affecting the entire West.  The cause of the crisis is the electricity market being too reliant on electricity bought outside of the state.  Murkowski made an analogy between the California electricity market and the U.S. reliance on foreign oil, warning that, "we cannot rely on others to provide our energy security."  He also blamed partial deregulation of the electricity market in California for the crisis.

Ranking Minority Member Jeff Bingaman (D-NM) also emphasized that the electricity market in California is not isolated from the rest of the western states.  The problems that have been encountered in California are reverberating through the west and the entire country.  But he warned that drilling in the Arctic National Wildlife Refuge (ANWR) is not the solution to the crisis.  Exploiting oil reserves in ANWR is the only proposal that he has heard from the Bush administration, which needs to quickly find a workable solution in California before the crisis spreads.

Senator Dianne Feinstein (D-CA) submitted a full statement into the record but highlighted some of the main points.  She read a letter from California Governor Gray Davis presenting four points that should alleviate the electricity problems of the state: 1) Increase electricity supply through building new power plants in the state, 2) Decrease electricity demand through increased efficiency, 3) Expand energy contracts, 4) Maintain the financial viability of energy companies. The senator expressed the need for the Federal Energy Regulatory Commision (FERC) to impose wholesale price caps as a short-term measure to lessen the effects of the electricity crisis.  Feinstein also mentioned two pieces of legislation she will present to the Senate, one dealing with long-term electricity contracts and the other wholesale price caps.

Senator Mary Landrieu (D-LA) stated her commitment to aiding California in this crisis and made suggestions to be included in a national energy policy to guarantee all states a reliable electricity source in the future. She suggested that more domestic oil production must occur, that all states should produce as much energy as they can while following federal environmental standards, that those standards should not be layered at the state and local levels, and that high energy costs caused by bad political decisions should not fall on the poor or small businesses.

Senators Larry Craig (R-ID), Ron Wyden (D-OR), and Gordon Smith (R-OR) all argued that the federal government should not compel the Pacific Northwest region to pay for California's energy problem.  In the Bonneville utility district, consumer rates have increased rapidly, while consumers in the state where the problem originated are not paying their share.  Another concern this year is the lower than average precipitation in the region that has decreased the hydroelectric generating power of streams. If the Pacific Northwest is to maintain adequate water supply for salmon habitat as well as state power needs, it is impossible to sell large amounts of electricity to California.

Senator Ben Nighthorse Campbell (R-CO) praised President Bush for convening an energy task force chaired by Vice President Cheney to find solutions to theCalifornia electricity crisis and discuss other energy issues.  Campbell emphasized the need for the federal government to intervene in California's problem because many of the western states share the same power grid, and because the strength of California's economy is connected to the strength of the nation's economy.

Senator Barbara Boxer (D-CA) is not a member of the Energy and Natural Resources Committee, but she made a statement thanking the committee for their commitment to helping relieve the crisis in California for the short term.  She asserted that the environmental regulations for clean air are not the cause of electricity shortages in California.  She also emphasized the point that the energy crisis is not only a California problem.  Boxer will present a bill to encourage implementation of wholesale price caps.  She concedes that the California electricity market structure is not deregulated but questions whether consumers would accept the higher prices that a truly deregulated market would bring.

Link to Senate Energy and Natural Resourced Committee webpage


Witness Testimony

Panel I
Larry Makovich, Senior Director of Research, North American Electric Power, Cambridge Energy Research Associates, Cambridge, MA
Peter Fox-Penner, Principal, Brattle Group, Washington, D.C.
Kit Konolige, Managing Director, Morgan Stanley Dean Witter, New York, NY

Panel II
Steve Frank, President & CEO, Southern California Edison, Rosemead, CA
Steven Kline, Vice President, Federal Governmental & Regulatory Relations, Pacific Gas & Electric, Washington, D.C.
Fred John, Senior Vice President, External Affairs, Sempra Energy, San Diego, CA
Keith Bailey, President & CEO, The Williams Companies, Tulsa, OK
Steve Kean, Executive Vice President & Chief of Staff, Enron, Houston, TX
Joe Bob Perkins, President & Chief Operations Officer, Reliant Energy Wholesale Group, Houston, TX
Curt Hildebrand, Vice President, Business Development, Calpine Corporation, Pleasanton, CA
Richard Ferreira, Executive Advisor, Sacramento Municipal Utility District, Sacramento, CA

Panel III
Tom Karier, Council Member, Northwest Power Planning Council, Spokane, WA
John Gale, General Manager, Pricing & Regulatory Services, Idaho Power Company, Boise, ID
Brett Wilcox, Chief Executive Officer, Golden Northwest Aluminum, The Dalles, OR
Mark Crisson, Director of Utilities, Tacoma Public Utilities, Tacoma, WA
Judi Johansen, Executive Vice President, Regulation & External Affairs, PacifiCorp, Portland, OR

The panels consisted of representatives from utilities, energy industry experts, and financial consultants.  Many of the panelists discussed similar topics concerning the origins and solutions to the electricity crisis as well as future steps to avoid electricity shortages in impacted areas throughout the country.

Speakers argued that the cause of the electricity crisis in California was that demand has exceeded supply.  Many factors have exasperated the problem.  Two points emphasized by the panelists were that no new power plants have been built in California even though demand has been increasing, and in the present California electricity market the wholesale price of electricity is not regulated while consumer prices remain capped.  The panelists stressed that measures must be taken to both decrease demand and increase supply of electricity.  Decreasing demand could involve promoting conservation, allowing customers to pay the market price for electricity, and constructing more energy-efficient power plants, buildings, and appliances.  Increasing supply will involve building more power plants in California, developing previously unused gas resources, and improving transmission of power within and between states.  Kit Konolidge presented the California energy crisis from the perspective of an investor.  He stressed that for the electricity market in California to be attractive to investors the state must allow longer-term wholesale electricity contracts and truly deregulate the industry.

Short-term solutions differ from long-term solutions to the electricity crisis.  A major barrier in the short term is finding a credit-worthy electricity buyer in California. Currently the only eligible buyers are the State of California and state agencies.  Keith Bailey and Lawrence Makovich suggested that all generating facilities in California must be working at full capacity and that purchasers of power ought to be allowed to use a full range of contract options not just the short-term contracts allowed by the state now.  Others advised that short-term solutions should include FERC-imposed price caps.  Makovich suggested that in the short term, conservation should be encouraged, environmental and legal limits should be more flexible to be able to provide emergency and backup power, and building of new generating facilities should be expedited.

There was consensus among panelists that in the long term the structure of the California energy market has to be dramatically changed.  They gave recommendations including allowing long-term energy contracts between sellers and purchasers, conservation, restoring the financial viability of California's utility companies, and complete deregulation.  According to Frederick E. John, the federal government has the role of giving suppliers the incentive to negotiate long-term contracts, and bring the state and utilities together to create "a fair and workable market."

Several panelists noted and several senators agreed that the electricity crisis occurring in California is only the beginning of a much larger energy crisis in the U.S. that has serious implications for all sectors of the nation's economy.  There is a need for the country to have a comprehensive national energy policy that balances economic concerns with environmental concerns.



Sources: Hearing notes and printed testimony

Please send any comments or requests for information to the AGI Government Affairs Program at govt@agiweb.org.

Contributed by AGI/AAPG Government Affairs intern Mary Patterson, and Margaret A. Baker, AGI Government Affairs Program.

Posted Febrary 2, 2001; Minor revisions February 4, 2001


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