Sacramento Bee

With a flick of the wrist, Gov. Gray Davis on Thursday plunged California deep into the power-buying business by signing the first major piece of legislation aimed at taming the state’s haywire electricity market.

The measure, which allows the state to enter into long-term contracts for electricity and lets officials sell $10 billion in revenue bonds to finance the purchases, will take effect immediately.

At a bill-signing ceremony, the Democratic governor said the state Department of Water Resources – currently steeped in negotiations – is expected to sign some contracts by Feb. 5 and could begin purchasing electricity under those contracts immediately.

The measure would allow the state Public Utilities Commission to raise rates for electricity use that exceeds a certain threshold, while capping rates for use less than that amount.

“This will allow us to enter into and sign long-term contracts that I believe will allow us to resolve our energy challenges without raising rates,” Davis said before signing the bill. “We’re making progress, but we shouldn’t kid ourselves; big challenges still lie ahead. We have to find ways to conserve more electricity, we have to increase our generating capacity.”

Shortly after signing the bill, Davis boarded a plane for Portland, where he met with other governors from western states to discuss the energy crisis.

At one point during the day, it wasn’t clear whether Davis would make it to Portland at all because the measure was stalled in the Assembly.

Assembly members began debating the bill, AB 1x, Wednesday and it was defeated 51-28 shortly before 3 a.m. Thursday, just three votes shy of passage.

Because the measure would take effect immediately, it required a two-thirds majority, or 54 votes, for passage.

Most Republicans balked at the measure’s provisions for $10 billion in revenue bonds and quibbled with wording that would allow the PUC to raise rates if necessary.

But less than 12 hours later, the measure passed 54-25 after Democratic leadership persuaded two Republicans and one Democrat to switch their votes from no to yes.

One of the Republicans who switched his vote was Assemblyman Anthony Pescetti, R-Rancho Cordova.

The Democrat who changed her no vote to yes was Assemblywoman Barbara Matthews, a former city councilwoman from Tracy, who said she initially voted against the bill because she believed it would lead to rate increases for farmers in her Central Valley district.

“There are some very, very sensitive issues (in the bill) relating to farmers and growers and I’m concerned about what the impact of this crisis will be on those farmers,” Matthews said during the debate Thursday.

But Matthews acknowledged she was pressed by Senate and Assembly leaders and even the governor, who made 23 calls to legislators in a bid to influence their votes. On Thursday, she was escorted into the Assembly speaker’s office by staff members before the vote.

Matthews also spoke with Gordon Smith, Pacific Gas and Electric president and CEO, about the utility’s inability to continue supplying electricity to customers without the state’s help. PG&E supported the bill during a committee hearing earlier this week.

“I have been assured that there will be a number of steps that we’ll be able to take during this special session to guarantee we won’t have crops rotting in the fields or family farms being put out of business,” Matthews said.

Most Republicans, however, said they had too many unresolved concerns to vote for the bill.

They feared that there will be no limit to the amount of bonds the state will sell. They also said the language allowing the PUC to raise rates for electricity use over 130 percent of a “baseline” amount will lead to inevitable rate increases for Californians.

In lieu of the bill’s revenue bond provisions, many Republicans advocated using a portion of the state’s estimated $8 billion surplus to subsidize any potential rate increase.

“The Republicans would like to see pay-as-you-go,” said Assemblyman Dennis Hollingsworth, R-Temecula. “We don’t think bonded indebtedness is a good thing for our state.”

Jamie Court of the Foundation for Taxpayer and Consumer Rights called the bill a bailout.

“This is basically a $10 billion credit card bill being given to Californians at the highest interest rate they will ever pay,” he said. “This should be a debt the parent companies of these two utilities pay.”

At the bill signing, Davis said he was hopeful the state will negotiate favorable enough contracts that the PUC will not need to increase rates.

His goal, he said, is to enter into enough short- and long-term contracts to limit dependence on the spot market to no more than 5 percent.

The state has been spending roughly $45 million per day on the spot market, where electricity prices can be as high as 30 to 50 cents per kilowatt hour. The state’s major investor-owned utilities are flirting with bankruptcy because they’re not allowed to charge ratepayers as much as they pay on the spot market.