Are SMUD ratepayers being good neighbors or wimps?
It’s 105 degrees outside. Air conditioners are screaming, straining to keep homes and offices cool and habitable. The California Independent System Operator has put the entire state on alert that the blistering heat may trigger yet another round of rolling blackouts.
But if you live in Lodi, that’s not your problem. Lodi doesn’t do blackouts.
The small public utility declared in April it will no longer participate in rolling blackouts, because Lodi has purchased enough power to see its customers through the summer, unlike the financially troubled investor-owned utility Pacific Gas and Electric, which has the state scrambling to purchase power on their behalf.
By saying no to blackouts, Lodi has essentially washed its hands of PG&E’s troubles, and has become a sort of test case for other municipal utilities that have grown increasingly frustrated with the energy mess they didn’t create.
“There is this thinking that the whole state is in it together, so everybody should suffer,” said John Fistolera, legislative director for the Northern California Power Agency, a collective of small municipal utilities of which the Lodi Electric Utility Company is a member.
Fistolera noted that municipal utilities, which account for about one-third of California’s electricity customers, essentially opted out of the 1996 deregulation scheme.’
“Roughly 30 percent of the state did not agree with deregulation. We said go ahead and do that if that’s what you want to do. But leave us out of it,” he added.
But far from being left out of it, public utilities like Lodi and the Sacramento Municipal Utility District (SMUD) have become entangled in PG&E’s money woes by a number of long-standing “interconnection agreements.”
The agreements, which are decades old, were intended to provide mutual protection in the case of disasters like failed transmission lines or power plants that unexpectedly must go off-line. In the event of an emergency, either utility is obligated to share electricity with its neighbor, and if necessary, even force blackouts on some of its own customers.
The interconnection agreement has worked well for SMUD in the past, even as recently as May, when a failed transmission line in SMUD territory prompted the import of 200 megawatts from PG&E. But while the agreement anticipated physical problems like a blown transformer or a plant breakdown, it is not clear that it covers financial disasters.
“We are not getting a lot out of the agreement right now,” said SMUD board member Peter Keat.
The problem is that many of the blackouts this year have occurred essentially for financial reasons. Pacific Gas and Electric can’t buy its own electricity, and because of astronomical prices the state has had trouble buying enough power to keep its electricity reserves at a safe level, prompting the Independent System Operator to order the utilities to shed some of their load.
Municipal utilities are beginning to question whether the interconnection agreement should bind them when the blackouts aren’t in fact physical emergencies, but have to do with the investor owned utilities own financial mismanagement.
“It’s just taking the pain from the investor owned utility territories and shoving it into other communities,” said Fistolera.
SMUD has been far more prudent about its power purchases, and, like many other municipal utilities, has entered into long-term contracts to ensure a reliable supply through the summer. SMUD board members have discussed following Lodi’s lead, but so far have stopped short of declaring its territory, and its ratepayers, off-limits to blackouts.
“I think the general feeling is that we want to be good neighbors if there’s a problem in Northern California,” said Keat, adding, “even if it’s not our doing.”
But are SMUD ratepayers being good neighbors, or suckers?
Keat said SMUD’s position could change if many more blackouts got much worse, and if ratepayers started to raise a stink.
So far, PG&E seems relatively sanguine about Lodi’s defection; after all, the small community is a bit player compared to a large district like SMUD.
But the troubled utility is busy trying to head off any major revolt among the public utilities by promoting the “we’re-all-in-this-together” approach.
“They have been benefiting from this agreement for decades. Now that we’re in a crisis, everybody needs to continue to participate,” said PG&E spokeswoman Jann Taber.
Taber added that if SMUD were to refuse to impose blackouts, it could threaten the entire electricity grid with failure. That concern was dismissed as an exaggeration, however, by SMUD director of energy trading, Tom Ingwers.
Any attempt by SMUD to spare its ratepayers blackouts is sure to be politically sticky.
While such a move would be sure to please many SMUD ratepayers—and win a great deal of customer loyalty—the utility might fear political reprisals from above if it appears to be acting too much in its own self-interest.
Consider Governor Gray Davis’ recent threat to seize surplus power from municipal utilities that don’t sell to the state at a "just and reasonable price." Most observers agree that the threat was aimed at the L.A. Department of Water and Power, which generates all of its own electricity and has been accused by some of price gouging. But oddly, the governor never named LADWP, instead cautioning all municipal utilities to toe the line.