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California Can Survive the Power Crisis Through a Straightforward Business Approach
By Anne M. Cleary

Reliable electric power fuels California's economic engine, but the state is fast approaching a summer energy supply breakdown far greater than any it has faced so far. By all accounts, even with significant additional conservation, we will not have sufficient power to prevent rotating blackouts in the range of 20 to 200 hours during the hottest months. And as the heat rises, we will pay a price in our quality of life and the continued vitality of businesses and industries that depend heavily on a stable flow of electricity.

At a time when real leadership and solutions are needed, name-calling and finger-pointing continue to run rampant throughout this power emergency. In particular, Mirant Corp. and other independent power producers have been miscast, demonized and blamed for the crisis, even though we generate only 30 percent of the state's power and had nothing at all to do with creating the current electricity marketplace.

The simple truth is that California's deregulation plan and the power market that emerged from it contained inherent flaws that laid the groundwork for the problems we are experiencing today. Once the problems became apparent, they were allowed to escalate for months until it was impossible to avert rolling blackouts.

Power providers like Mirant actually have been exceedingly loyal to California, deferring payment of hundreds of millions of dollars owed by investor-owned utilities for electricity already generated and delivered. Many small providers have even fallen into financial ruin awaiting payment. Providing California with unsecured credit is not our responsibility.

Speaking for Mirant, we have also shown our commitment to California. Mirant has delayed outages necessary for environmental upgrades of its plants to avoid having those outages occur during periods of critically low supply. The only reason we take a plant off-line is to address an environmental or safety concern. These delays have occurred at the last minute, typically resulting in Mirant incurring significant costs to contractors whose work was delayed or canceled. Mirant has also purchased power from other suppliers who would not accept the credit risk of California purchasers and resold it at cost through the state.

Proposals that would put state government into the business of operating, maintaining and building electric power systems only compound the economic pain of recovery by requiring that consumers and taxpayers not only pay higher rates but also foot the bill to repay huge new bond debts. Throwing taxpayer dollars at the problem has not made it disappear, and will not contribute to a long-term, comprehensive solution. If anything, energy shortages, massive public spending on power, and proposed bonds to repay large debts are unraveling California's credit-worthiness, meaning taxpayers also could wind up paying higher interest rates on bond repayment.

This could have a devastating impact on California businesses. Responsible business people should be concerned that the state's very costly crisis response to date is jeopardizing funding that could be vital to critically needed improvements in education and the state's crumbling infrastructure. Failure to continue investing in such programs put the state's economic future at serious risk.

Anne M. Cleary 
is president of Mirant California, LLC. Mirant is a new competitive global energy company focused on operational excellence and risk management. Mirant's California plants are located in San Francisco and Contra Costa counties and provide 3,065 megawatts of power, with an additional 1,050 megawatts currently under development.

Power supplies must be normalized before the problem destabilizes the entire California economic equation. Small businesses feel the impact first, because they have the smallest cushion. A recent poll by the National Federation of Independent Businesses showed that one in five contemplate moving out of state, while others plan to cut back on business investments, new hiring, employer-paid benefits or store hours in response to the uncertain energy market. Some larger companies also have made it clear that no further expansion will occur in California until dependable power supplies can be assured.

The ripple effect could touch every aspect of the state's economy. California led the nation in mass layoffs during the fourth quarter of 2000, and the exodus of California businesses and working population has made Nevada the fastest growing state in America. While not all of this can be laid at the feet of the energy crisis, there is no question that it has contributed significantly.

On a smaller scale, the rotating blackouts that seem virtually assured to recur this summer will force restaurants, stores, factories, and other businesses to close down, with these impacts that trickle down:

• Hourly employees receive less money for fewer working hours.
• Without income, these employees have less to spend on goods and services.
• As spending declines, there are fewer orders for goods and services, triggering further layoffs.
• These economic losses lead the state toward a massive recession.

When business owners are hit with higher taxes, reduced revenues, higher utility charges, and higher costs for goods and services, they can raise prices, lower standards of service, or leave California altogether. When businesses pull out, we lose jobs, tax base, and economic viability. Houses stop selling. Shipping costs, moving costs and reduced competition further increase prices; and California's budget surplus becomes California's budget deficit.

Tinkering with state ownership of the power grid and flirting with the creation of a Public Power Authority is not the best long-term approach for California, especially if we want to ensure a reliable, on-going supply of power and stable, predictable, market-driven rates.

We must take a businesslike approach to solving the energy crisis. However painful in the short term, rates must be allowed to rise sufficiently to provide utility companies with the funds needed to repay past debts and allow the Department of Water Resources (or whoever the state designates) to purchase power in the future. Ultimately, bringing rates into line with the actual cost of generating and delivering electricity will stimulate conservation, provide incentives for investment in badly needed new generating capacity and stabilize consumer costs.

In addition, every effort needs to be made to get enough power generation on line to create a reasonable power surplus capable of withstanding today's peak demands and future growth. In the meantime, to handle current loads, generators need some latitude under federal and state environmental rules to keep their plants running. For example, our peaking units (small power plants that operate when demand is highest) were approaching their maximum run hours for the entire year, due to demands by California power officials to keep them running during the crisis. Mirant recently reached an agreement with the Federal Environmental Protection Agency and the local Air Quality Control Board to extend the run hours of the peaking units and keep their power on the grid.

California can work through the current crisis, but only by taking a straightforward, businesslike approach. Without it, the "California Dream" could become the "California Nightmare" for years to come.

California can work through the current crisis, but only by taking a straightforward, businesslike approach.