San Diego Union-Tribune

Page A-1

14-Jan-2001 Sunday 

Davis wants legislation to let state help utilities

Ed Mendel and Toby Eckert 
The Associated Press contributed to this report. 

After a lengthy round of long-distance talks yesterday, Gov. Gray Davis and legislative leaders said they will seek legislation to let the state buy
electricity through long-term contracts. The move is intended to prevent utilities from going bankrupt and end the risk of rolling blackouts.

Davis said the strong financial position of the state will allow it to buy electricity at rates much lower than Pacific Gas & Electric Co. and Southern California Edison Co. can get.

"The state is a creditworthy purchaser that can obtain power at a vastly reduced rate," Davis said.

The governor said he hopes generators and marketers will submit a variety of bids in the range of 5 cents to 5.5 cents per kilowatt-hour. That rate is far below the 35 cents per kilowatt-hour the state's beleaguered
utilities are paying now, but above what they paid last spring.

The governor made the announcement in Los Angeles after he and the legislative leaders met behind closed doors with electricity industry officials for nearly seven hours. They were hooked up by a video link with top federal officials in Washington, D.C.

Davis said many of the details need to be worked out, including the length of such contracts. Working groups will continue negotiations before the
legislation is introduced this week, possibly as soon as Tuesday.

Joe Bob Perkins, president and chief operating officer of Reliant Wholesale Energy Group, was noncommittal on Davis' proposal.

"We're still digesting it," he said.

Representatives from PG&E and Edison refused comment after the meeting.

Douglas Heller of The Foundation for Taxpayer and Consumer Rights, a consumer advocacy group, was wary about the late-night decision.

"If the state becomes a public power agency buying electricity, will the public benefit from that?" Heller said. "Or is it a mechanism for giving utilities their bailout?"

The governor emerged from the meeting in his office on the 16th floor of the Ronald Reagan state building in Los Angeles flanked by Assembly Speaker Robert Hertzberg, D-Van Nuys, and Senate Minority Leader Jim Brulte, R-Rancho Cucamonga.

He emphasized the importance of a bipartisan effort to solve the crisis, triggered by a failed electricity deregulation plan.

"We are joined at the hip," Davis said. "If we move forward, we are going to move forward together."

Davis said he is urging generators and marketers to begin submitting bids to the state immediately, even before the authorizing legislation is passed
and before the state has decided how it will pay for the electricity, whether with cash from the state's general fund or by borrowing money.

The state will be at little or no financial risk because repayment will come from utility customers' monthly bills, Davis said. He emphasized that he intends to solve the electricity crisis without using taxpayer money or a further rate increase for utility customers.

"Clearly, the state will be reimbursed for all the power it purchases," Davis said.

Edison and PG&E have said they have a combined debt of nearly $12 billion. The rates they can charge their customers have been frozen under
deregulation while the price they must pay to buy electricity on the wholesale market has soared, creating the massive debt and bringing them to the brink of bankruptcy.

But Davis said the utilities have been overstating their debt and that the actual amount is half or less, because the utilities have been counting
money they owe for buying electricity from their own parent corporations.

The governor said he hopes an arrangement can be made to begin paying off the utilities' debt by using a portion of what utility consumers pay.

Meanwhile, Davis said discussions will continue with power generators and marketers on a potential agreement to extend the time utilities will have
to begin paying off their debt. That extension could be several months.

Yesterday's conference was literally a cross-country affair. Gene Sperling, top economic adviser to President Clinton, and Treasury Secretary Lawrence Summers convened one group of government and power industry executives at the Department of Energy in Washington, while Davis, the legislative leaders and representatives of generators and utilities met in Los Angeles.

Energy Secretary Bill Richardson, who was in Saudi Arabia talking oil policy with OPEC leaders, checked on the progress of the California talks by phone, an aide said.

Deregulation of California's electricity market, and the quirky state rules that go along with it, have produced gigantic problems for the state's
three investor-owned utilities and their customers.

PG&E and Edison have had to buy power at market rates, but are prohibited from passing on most of that cost to their customers.

San Diego Gas & Electric Co. met the requirements of the deregulation law before its two counterparts and was allowed to pass through the full cost of electricity purchases to residents and business owners.

When those prices doubled and tripled last summer, the public outcry caused the Legislature to limit what SDG&E could charge most of its customers. The difference is being tabulated in a "balancing account" that the Legislature said SDG&E will be able to collect eventually. That guarantee has helped SDG&E maintain a stronger credit rating.

The supply of electricity was particularly unpredictable last week, as the state edged into its second-ever Stage 3 emergency. Such an alert means the state's power reserve is nearly gone, and rolling blackouts are possible.

The blackouts were averted Thursday when the state Department of Water Resources bought power, a rare step.

The decision to spend about $30 million over the last few weeks for power outraged some consumer groups, which said it amounts to a public bailout of for-profit utilities.

Michael Shames, director of the San Diego-based Utility Consumers' Action Network, said the move is of concern if the state becomes involved in long-term contracts.

"I don't have a problem with them being the purchaser, but if the department is committed to a seven- to 10-year contract, then we have
problems," Shames said. "We will have effectively created a long-term commitment to power in a market that's changing rapidly."

With the arrival of the weekend, power demands dropped, and the California Independent System Operator reported no difficulty in meeting power needs yesterday. The ISO manages about three-quarters of the state's power grid.

While the electricity negotiations lumbered along, Davis sought emergency federal help in keeping natural gas flowing into the state.

He asked Clinton to direct Richardson to order natural-gas producers to continue supplying Pacific Gas & Electric. Three producers have threatened to cut off PG&E because of the San Francisco-based utility's shaky financial condition.

In a letter to the president that was released yesterday, Davis asked that provisions of the Natural Gas Policy Act of 1978 be invoked. The law
requires the state to certify that a natural-gas shortage exists before the federal government can step in.

"This imminent gas shortage endangers the supply of natural gas both for PG&E's residential and business customers and also for service to electric generating plants in northern and central California," Davis wrote.

Most of the state's electric generating plants are fueled by natural gas, and most natural gas used in California is produced out of state. The price
of natural gas has soared in recent months.

The order that Davis requested is similar to Richardson's order that electricity suppliers continue to sell power to California utilities.

The Department of Energy had no response to Davis' request yesterday.

In San Diego County, members of the San Diego Regional Energy Alliance spent yesterday asking people to fill out pre-printed postcards and letters that express their displeasure with the escalating cost of natural gas.

The coalition of businesses, chambers of commerce and citizens groups will mail the letters to the Federal Energy Regulatory Commission. The coalition seeks a cap on the cost of interstate transportation of natural gas.