Shock Treatment

California eats lots of power, but it doesn't like growing its own power plants. Instead, Arizona is becoming the new power farm for the Coast.

The three fundamental C's of Arizona -- copper, cotton and cattle -- have a new partner. California power.

Twenty massive power plants are under construction or in the planning stages in Arizona.

The bulk of the power from those plants, as much as 15,000 megawatts, will be sold to California. By 2003, Arizona will produce enough power for more than 20 million people.

The plants are being built in Arizona because it is one of the easiest and cheapest places in North America to get an energy facility approved and built.

Companies are rushing plants through approval and construction processes to get in on some of the biggest profits in the electricity industry, which will be made in the next two to three years.

In effect, it's a land rush, a feeding frenzy. Right now, the early bird gets the juiciest long-term contract.

The issue, then, is not blackouts. Arizona soon will have three times more power than it needs.

"There's not going to be a power shortage in Arizona," says Peter Navarro, a top California energy analyst and associate professor at the University of California-Irvine. "The question for Arizona is what you're going to get in return for being California's power farm.

"Then, of course, there's the issue of what sort of nasty little problems you're going to find once this frenzy is over."

In some ways, Arizona has already given away the farm in incentives and tax breaks. One state law passed last year, for example, allows power plants to piggyback on a state tax law originally designed to help mom-and-pop entrepreneurs get started in the state. In effect, power plants get a 30 percent tax cut in their first two years, a break that could shortchange the state more than $60 million.

In some cases, local county boards and economic councils have given up much more.

And those nasty little problems Navarro mentions are already appearing. Cries of foul play and foul planning are emanating from around the state.

The most egregious ramrodding would appear to be taking place in Mohave County, where Arizona's first new plant will fire up this summer and a second is being slammed through local and state committees. (See the related story on page 32.)

Even SRP, the Valley's fatherly public utility, is being accused of soiling the Valley's air and draining its water to profit in California. SRP counters that it's rushing to put a plant the size of the new Cardinals stadium in residential Gilbert to meet a critical need in the East Valley.

But there are upsides to becoming a power farm.

As long as all of California doesn't seek refuge in Arizona, the state will have enough electricity in the short term. Within two years, Arizona will be producing much more power than it needs.

Although the bulk of the energy will flow west, in the short term, power produced in Arizona will stay here if Arizona needs it, thanks in part to local consumer advocates who took the issue to court.

Natural gas and who controls supplies and shipping is also a major factor in Arizona's power picture because natural gas is what's needed to fuel these new plants.

In two years, prices should drop as new generation plants and transmission lines come on line and as old gas wells in Texas and the Four Corners region are revived and new wells are drilled. Reacting to price signals, the number of operating gas wells in the United States has more than doubled in the last year.

By 2004, there should be enough power for sale by enough different entities that wholesale prices should fall, and those lower prices, theoretically, would be passed directly on to retail customers.

But one maxim of the modern deregulated power industry, analysts say: The beast is always hiding in the details. And there are signs, such as the recent emergency burning of diesel fuel at SRP's natural gas plant in Gilbert, that natural gas supplies and prices could be the Achilles heel of Arizona's increasingly gas-dependent power grid.

"Natural gas supplies are a legitimate concern," says SRP's Mark Bonsall.

Which is why El Paso Natural Gas, the company that sends natural gas to the Valley, is emerging as a power player. The company could use its mammoth market clout to squeeze central Arizona as it is accused of squeezing Southern California.

El Paso, after all, will be building the gas lines and providing the gas to many of these new plants.

"Beware of the Texholes," one California antitrust lawyer warns, dusting off an old epithet for Houston-based oil barons, who, thanks to deregulation, now own much of the generation capacity in the West.

Indeed, it is the emergence of a feeding frenzy among companies so often accused of collusion, not the blackouts in California, that could be the harbinger of doom for Arizona.

"The alt fuel thing, the real estate crash -- all the really bad things in Arizona happen when there's a frenzy like this," says Pat Sherrill, who has been fighting the proposed Caithness plant northwest of Phoenix in Mohave County. "You've just got to wonder what is lying in wait for us down the road. History tells us it just can't be good."

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