story on muni opposition to summer blackouts. ,
 PG&E could face mutiny on outages: SMUD, others may balk if 
utility orders summer blackouts  

By Carrie Peyton Bee Staff Writer (Published March 7, 2001)  

Sacramento's electric utility wants out of a deal that imposes 
rolling blackouts locally on PG&E's command.  

So do a lot of other utilities.  

They've been writing letters, lobbying lawmakers and launching 
informal talks with Pacific Gas and Electric Co. to get off the hook 
before summer.  

Who dodges the blackout bullet "is going to play out as a political 
hot button" around the state, said George Fraser, head of the 
Northern California Power Agency, a coalition of municipal utilities.  

In Sacramento, the next volley is expected soon, with the 
Sacramento Municipal Utility District reportedly poised to notify 
PG&E that it will no longer black out homes and businesses on the 
larger utility's command.  

"We are absolutely trying to fight off the requirement for rolling 
blackouts for the Sacramento area," said Linda Davis, one of seven 
elected members of the SMUD board of directors.  

Saying they don't want to be dragged down by somebody else's 
problems, two Southern California utilities have written grid 
operators asking to be exempted from any blackouts caused by 
PG&E's or Southern California Edison's financial woes.  

But in PG&E's view, "California is in an energy crisis (and) ... we're 
all in this together," said spokesman John Nelson.  

The maneuvering comes amid bleak forecasts for power supplies 
this summer.  

Although Gov. Gray Davis has said conservation, new power plants 
and moderate weather could avert blackouts, officials at the 
Independent System Operator, which runs much of California's grid, 
expect frequent rotating outages.  

One consulting firm, Cambridge Energy Research Associates, 
predicts 20 hours of rolling blackouts during July and August, and 
about 200 hours of especially intense calls for voluntary cutbacks.  

Before blackouts hit, the jockeying over just whose lights, air 
conditioners and assembly lines will be shut down is growing. The 
outcome could affect millions of people statewide.  

The state Public Utilities Commission is probing rolling blackout 
programs run by the for-profit utilities it regulates, including PG&E 
and Edison.  

A PUC analysis has suggested that PG&E's program, which 
currently exempts about 40 percent of its customers, should 
spread the burden more broadly. For example, it said, 1.9 million 
homes and businesses are spared just because they share a 
circuit with a customer deemed "essential."  

But not-for-profit utilities such as SMUD, which answer to their own 
elected boards or city councils, have other worries.  

Many have already lined up their power supplies for summer. Some 
have raised rates or are considering raising rates. Some have taken 
extra conservation steps. They think those preparations ought to 
give them leverage to ease blackout clauses in their contracts with 
PG&E.  

SMUD general manager Jan Schori "is going to use every avenue 
... any avenue, to put pressure on," including lobbying the ISO, the 
governor and others, said utility director Davis.  

The Northern California Power Agency, a joint-powers authority that 
owns and operates power plants for municipal utilities, has begun 
informal negotiations with PG&E to change blackout rules, 
according to Fraser, its top executive.  

It is preparing to write PG&E, asking that its members be 
exempted from outages altogether. Failing that, it wants them to 
face fewer outages or to be compensated for cutting off power, he 
said.  

At SMUD, the utility board has met in closed session to discuss 
exactly what it is required to do during electric emergencies, under 
terms of the interconnection contract that links SMUD's lines to 
PG&E's.  

"The contracts are being inspected with a fine-tooth comb," said 
SMUD director Howard Posner.  

Schori declined to comment on any specifics. Sources indicated 
that the main option being considered is notifying PG&E that 
because of changed circumstances, SMUD believes it no longer is 
required to routinely comply with outage requests.  

Other options being explored include re-negotiating existing 
agreements with PG&E.  

Posner said that ever since two days of rolling blackouts in 
January, constituents have been asking him, " 'Why are we 
participating when we're not the problem?' And I don't have a good 
answer to that."  

Several directors said SMUD has already spent a lot of money -- 
and is considering 16 percent rate increases -- to ensure that it has 
enough electricity under contract to meet its customers' summer 
demands. They believe PG&E should do the same.  

"We're almost like a David against Goliath here," said board vice 
president Genevieve Shiroma. "The huge investor-owned utilities 
next door have severe problems that they need to get under 
control."  

In addition, SMUD plans to argue that because it can cut usage 
through its "Peak Corps" program, which remotely turns off air 
conditioners at volunteer households, it has already done its part 
without rotating outages, director Davis said.  

PG&E believes the interconnection agreements that govern smaller 
utilities' ties to its transmission lines have "benefits and burdens to 
both sides," said Nelson.  

"It wouldn't be fair or good policy for just one provision to be altered 
without taking a look at how that affects the entire contract," he 
said.  

Interconnection contracts generally have clauses that require 
utilities to help each other out to avert greater emergencies.  

Sometimes reducing demand -- called load shedding -- can be the 
only way to stabilize the electric grid in the seconds after a major 
power plant or transmission line fails.  

"It's been around in the electrical fabric forever," said Jim Pope, 
head of Silicon Valley Power, Santa Clara's city-run utility. In 
addition to legal requirements, "you have a moral obligation so you 
don't bring the system to collapse."  

Like other city-run utilities, Silicon Valley Power has a contract 
with PG&E that requires it to shed load during an electric 
emergency. But its contract allows it to work with big users to 
reduce their demand, so no one has to be completely shut off.  

Such agreements, formed long before deregulation when PG&E ran 
the north state's grid, now are complicated by the 1997 creation of 
the state Independent System Operator. The ISO today runs 
pieces of the grid owned by PG&E, Edison, and San Diego Gas & 
Electric Co.  

If it believes power use is about to surge past supply, potentially 
triggering a grid collapse across the western United States, the 
ISO notifies the three utilities that they have to shed a certain 
number of megawatts.  

The big utilities meet that requirement two ways. They cut circuits 
to some of their own customers, and they tell smaller, connected 
utilities to cut a proportionate share.  

In Northern California, about 80 percent of the outages are borne by 
PG&E customers and the rest by customers of SMUD and other 
municipal utilities and irrigation districts.  

"In one sense, we are all in this together. If SMUD were in danger 
of going down, we would hope others would help us out," said 
SMUD's Posner. "But that's if we're in danger from circumstances 
beyond our control, not from mismanagement or lack of financial 
wherewithal."  

It is unclear what penalties, if any, a utility would face for violating 
an interconnection agreement. In the long run, the issue would be 
fought either in the courts or before the Federal Energy Regulatory 
Commission, grid officials said.  

As a practical matter, in the seconds when the risk to the grid is 
greatest, if one utility refused to shed load, the ISO would probably 
solve to problem by calling on PG&E, Edison or others who are 
willing to make deeper cutbacks,  they said.
steven.kean@enron.com, richard.shapiro@enron.com, mark.palmer@enron.com, 