California turns to Web auctions for energy
The e could stand for energy in a high-stakes bidding game that takes its cues from online-auction giant eBay.
California Gov. Gray Davis announced Tuesday that the state, which has been plagued by rolling blackouts and has become the brunt of jokes on late-night television, would hold a 27-hour auction on the Web to find the lowest-cost, most reliable supplier of energy.
The Department of Water Resources (DWR) began receiving sealed bids for peak and off-peak energy contracts to be delivered over six-month, three-year, five-year and 10-year contracts, Davis said in a statement. The auction, which requires bidders to download and fax an Excel spreadsheet application, began at 9 a.m. Tuesday at the DWR Web site and will conclude at noon Wednesday.
"I expect these bids on long-term energy contracts should stabilize the market and drive the price of electricity down," Davis said in the statement, which didn't include information on when the winning bids would be announced. "This is a key step in our efforts to keep the lights on in California at a reasonable price."
Davis appointed DWR officials last week to spearhead a $400 million emergency power-purchase plan. In order to stop continued waves of blackouts that have darkened homes and businesses throughout Northern California since Thursday, Davis is allowing the agency to tap taxpayer money to buy power.
In the past week, the DWR has negotiated power contracts totaling more than $75 million, in many cases with only an hour to spare before blackouts hit more areas.
Meanwhile, the state's two largest utility companies say they can't afford to buy power themselves, resulting in dire warnings and rotating power outages at some of the nation's largest technology companies and in more than a million homes in the country's most populous state.
Pacific Gas & Electric (PG&E), which powers much of Northern California, and Southern California Edison, are teetering on bankruptcy and insist they cannot afford to pay market prices for energy. Both companies are billions of dollars in debt, and both say they will go out of business unless they are able to dramatically increase the price consumers pay or unless providers radically cut the cost of energy.
Despite the worrisome financial state of the utility companies, experts at the California Independent System Operator, which supplies energy to about 75 percent of the state's power grid, say the utilities are not necessarily to blame for the outages.
California imports at least 20 percent of the energy it requires, typically from Arizona and the Pacific Northwest. An unusually cold and dry winter has inflated demand for energy to heat homes, while dozens of hydroelectric facilities and reservoirs in the West are nearly empty of water.
Ultimately, blame also lies in California's phenomenal growth: Largely because of immigration patterns and heightened job growth in the technology industry, the state has absorbed 580,000 newcomers in the past year for a total of about 34.3 million residents, according to the ISO. California also gets some energy from the Southwest and Northwest regions of the United States--areas that have outpaced national growth rates.
Still, many Californians blame the outages on the faltering utilities, and power providers have threatened to hold back supply from PG&E and Southern California Edison. Edison International and its Southern California Edison subsidiary defaulted last week on a $596 million loan owed to creditors.
Davis and other public officials who are worried about California's embarrassingly buckled energy grid think the online auction will result in lower prices on long-term supply contracts for the state's strapped utility companies. Bidders in the online auction must have an investment-grade rating from either Standard & Poor's or Moody's--or else they must provide "some form of additional security" to the DWR.