San Diego Union-Tribune

A-1

27-Feb-2001 Tuesday

CALIFORNIA POWER CRISIS 
  Davis fights for backing, takes state plan to D.C.
    `Lots of people' in capital wary of transmission-grid takeover 


Toby Eckert 
COPLEY NEWS SERVICE 

WASHINGTON -- Gov. Gray Davis, worried about possible federal opposition to the state's plan to take control of California's power transmission system, said he will lobby Energy Secretary Spencer Abraham on the plan in a meeting today.

"Clearly, we have to persuade lots of people in Washington that what we're doing is the right thing," Davis said yesterday, citing recent news reports that indicate opposition to the plan from the head of the Federal Energy Regulatory Commission, or FERC.

The commission appears to have authority over approving the plan.

After joining other governors in a wide-ranging meeting with President Bush at the White House, Davis also said "there may be some give" on the Bush administration's opposition to price controls on wholesale electricity if power generators are assured a healthy profit. He did not elaborate.

A White House spokeswoman said she was unaware of any change in the administration's stance on price controls.

FERC Chairman Curtis Hebert has declined to comment on how the commission might rule on California's plan to acquire 26,000 miles of utility-owned electricity transmission lines as part of a strategy for solving the state's power crisis.

But in an interview with the Dow Jones news service last week, he indicated the plan may run counter to FERC's policy of encouraging the development of regional transmission organizations, or RTOs, to manage access to power grids.

"Anything that moves in the opposite direction of RTOs . . . is against the best interests of the American public," he was quoted as saying.

Davis said Hebert's comments "raised concerns in my mind. And I want Secretary Abraham to understand the motivation for doing this is to solve the problem, allow the utilities to get back into business, pay off the generators and the banks, and begin to stabilize the market."

While Abraham does not have direct authority over the issue, he is part of an energy policy team appointed by Bush. Davis sees winning Abraham's backing of the plan as a possible key to federal approval.

"I think that team's assessment of the progress we're making will have a lot to do with how Washington responds, including the FERC," Davis said.

Davis will also pitch his plans for ending the crisis to Wall Street
analysts tomorrow. However, he said he had no meetings planned with FERC officials.

The Democratic governor acknowledged that many California Republicans are philosophically opposed to the state buying the transmission lines.

"Some people in Washington, I think, see this as more of an ideological statement" by the Democrat-controlled state government, Davis said. "As a governor, I see it as a practical solution to a problem we're trying to deal with."

The state wants to acquire the transmission system from Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric as a condition for helping the utilities pay off some $13 billion in debt they have accumulated. The debt is a product of soaring costs for wholesale power that the utilities have been unable to fully recover from consumers under state law.

Davis announced a tentative agreement last week to buy Edison's power lines for $2.76 billion.

The purchase plan also will allow the state to upgrade the transmission system and fix bottlenecks in the flow of electricity within California and from neighboring states such as Arizona, Davis said.

He and other governors stressed the importance of improving the power grid in a discussion yesterday with Abraham, Environmental Protection Agency Administrator Christie Whitman and Interior Secretary Gale Norton.

"We'll need federal approval and, hopefully, federal assistance on the financing of those improvements" in California, Davis said.

The governor has tangled with FERC on numerous aspects of the power crisis. The commission, which has authority over the wholesale power market, has resisted Davis' proposal to cap wholesale prices in the West. Bush and
Abraham have, too.

But Davis suggested that temporary "cost-plus" price limits -- in which wholesale rates would reflect the cost of producing the power, plus a set profit margin -- may still be an option.

In San Diego yesterday, House Speaker Dennis Hastert, R-Ill., emphasized that California needed to resolve its own energy problems and rework its deregulation plan. But Hastert held out the possibility of caps on the wholesale price of electricity, which have bipartisan support from California representatives and senators.

"Maybe we can do that on a short-term, focused way, but you have to go back and fix the legislation," Hastert said in a meeting with The San Diego Union-Tribune's editorial board.

Davis indicated that he discussed the power crisis in general terms with Bush and would have a more detailed talk with Abraham.

Bush "invited me to call on him directly if we need more assistance," Davis said.