San Diego Union-Tribune

10-Jan-2001 Wednesday 

(Page A-1 )

CALIFORNIA POWER CRISIS 
  Energy summit generates optimism
  Davis offers few specifics after Washington meeting 


By TOBY ECKERT 
COPLEY NEWS SERVICE 

WASHINGTON -- After a seven-hour session on California's power crisis last night, Gov. Gray Davis said negotiators "can see light at the end of the tunnel."

The closed-door talks between state and federal officials and players in the state's electricity market produced progress on what Davis called the crucial issue of ensuring that California utilities can buy electricity through suitable long-term contracts.

Negotiators at the summit, which White House officials arranged last week, are developing a way to "ensure reliable power at a very attractive rate," Davis said. "That I think is the key to the long-term solution to this problem."

In a short news conference about midnight, Davis provided few details about the contracts and did not discuss rates.

Groups of negotiators will continue to work on the issue in Washington today, and the main participants will reconvene this weekend.

They also said they will continue to work on other elements of a solution, including an effort to persuade electricity providers to be patient with the state's utilities, which face tremendous debt.

Davis focused his remarks on changing the way the utilities buy power.

"This problem will never go away unless we diminish our reliance on the spot market," he said. "That is best done through long-term contracting."

Consumer groups, which did not participate in the summit, have said long-term contracts would be a mistake for California. They have expressed fear that such contracts would lock in rates that are much higher than what people were paying for electricity less than a year ago.

Robert Hertzberg, speaker of the California Assembly, characterized last night's session as "a very, very productive meeting."

Administration officials had set low expectations for a breakthrough, but the length of last night's session was an indication of the high priority of this issue that has bedeviled state and federal officials for months.

Treasury Secretary Lawrence Summers was the host of the meeting, underlining the growing concern about the impact California's power woes could have on a slowing national economy.

Energy Secretary Bill Richardson, federal and state regulators and top executives from California utilities and the nation's power suppliers also attended.

The players have been at odds on numerous issues, ranging from caps on the wholesale price of power to outright re-regulation of California's power market. Under deregulation, the state's large utilities have been hit with
skyrocketing wholesale power costs, but are unable to pass on the full cost to most consumers.

Earlier, aides to Davis had said the governor intended to renew his push for wholesale rate caps -- and approach already rejected by the Federal Energy Regulatory Commission.

But FERC chairman James Hoecker, who attended the meeting, indicated some flexibility on the issue last week.

Hoecker said he may be willing to consider caps on a temporary basis while a longer-term solution to California's soaring power costs is worked out.

Clinton administration officials had portrayed their role in the talks as neutral arbiters, assembling all the interests in hopes of finding a solution. Gene Sperling, President Clinton's chief economic adviser, also was among the 25 people at the summit.

Further evidence of the broken electricity market surfaced yesterday as the California Independent System Operator, manager of most of the state's power, declared a Stage 2 emergency when power reserves dipped below 5 percent. It was the first Stage 2 alert since Dec. 21. Generating plant outages and a shortage of electricity supplies from the Pacific Northwest were responsible, the ISO said.

Davis' trip to Washington, the second in as many months, followed a toughly worded State of the State address on Monday in which he outlined several steps to bring the chaotic power situation under control.

In his speech, Davis proposed the creation of a state power authority that could buy and build generation plants. He said that if he had to, he would use the state's condemnation power to gain control of generating plants.

He also pledged to restructure the manner in which power is bought and sold in the state's deregulated market. Critics said Davis' approach was short on specifics.

For California utilities like Pacific Gas & Electric and Southern California Edison, the most immediate concern is financial solvency.

PG&E claims it could be bankrupt in three weeks, Edison in three to six weeks.

STAGE 2

The California Independent System Operator, manager of the state's power grid, declared a Stage 2 alert yesterday after reserves dropped to less than 5 percent of available energy.