California considers rate hikes as Davis, Clinton meet

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The Associated Press

A two-day hearing opened Wednesday with wildly divergent suggestions for dealing with California’s electricity crisis.

With sharply higher electricity bills looming for most Californians, one lawmaker would have the state buy the largest utilities’ hydroelectric plants. A former Public Utilities Commission member urged the commission to approve a consumer rate hike and let deregulation run its course.

Pacific Gas & Electric Co. is seeking a 26 percent rate increase beginning Jan. 4, a PG&E spokeswoman said Wednesday. The PUC said it will determine on Jan. 4 just how much to raise rates.

Meanwhile, the hearings, along with an outside audit of the utilities’ books, are intended to persuade consumers that the rate hike is unavoidable.

While the hearings continued, Gov. Gray Davis stayed in Washington, D.C., where he planned to meet with President Clinton to discuss possible federal fixes for California’s deregulated market.

“If deregulation fails in California, it is dead in America,” Davis said in a statement released by the governor’s office Tuesday.

Former PUC chairman Gregory Conlon, who was on the PUC when the electricity market was deregulated in 1996, said deregulation isn’t to blame for the energy crisis. He said a lack of investment in new power plants, along with the drought that has reduced water flow in hydroelectric plants, are responsible.

“The right thing is to keep the utilities liquid and viable, because if you don’t, the lights will go out,” he said. “Trust the system, don’t throw the baby out with the bath water. This is something that is not a California event – it’s happening all over the world.”

But Assemblyman Fred Keeley, D-Boulder Creek, offered a plan at Wednesday’s hearing to have the state spend $6 billion to buy and operate PG&E‘s and Southern California Edison‘s hydroelectric plants.

Purchasing the power plants would offer “enormous benefits to consumers,” Keeley said. “The state of California could exert market influence on behalf of consumers.”

Keeley warned in a written statement that unless the underlying flaws of the power market were fixed, the PUC‘s rate increase would be the just the beginning.

Keeley said his plan would give the financially strapped utilities needed cash, head off a rate increase and help stabilize the market.

The PUC reassured Wall Street last week that it would keep the state’s two largest utilities from going bankrupt. Pacific Gas and Electric Co. and Southern California Edison are losing $40 million a day to buy energy but the rate freeze they agreed to as part of the state’s deregulation scheme prevents them from passing the cost on to consumers.

Davis, who has been closely involved in closed-door negotiations with the utilities, said he won’t reveal his plan until his Jan. 8 State of the State address – after the PUC raises rates. Meanwhile, he tried to distance himself from the decision.

“The PUC is the legal body that will make a determination,” the Democratic governor said Tuesday in an interview in Washington with Nightly Business Report. Asked what he thought the PUC should do, he said: “It doesn’t matter what I think.”

The governor did not mention that the PUC is composed of gubernatorial appointees, and that within a week he will have the authority to appoint another member of the five-member panel, giving his appointees a majority.

A spokesman for a consumer group that favors reregulating California’s electricity market, said Davis was “passing the buck at every turn, seeking to distance himself from rate hikes that will be pinned on him.”

“It all comes down to Davis. He is the one setting up the meetings with the utilities, he has the authority to appoint the PUC majority, he could step in,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

The PUC earlier declared that PG&E and SoCal Edison, serving a total of 10 million homes and businesses, needed rate increases to help cover some $8 billion in losses they’ve incurred since June.

Davis also met Tuesday with Federal Reserve Chairman Alan Greenspan and U.S. Treasury Secretary Lawrence Summers about the economic implications of the electricity crisis, but provided no details.

In the Washington interview, Davis signaled his continued support for deregulation, but said “there are no magic bullets. We just have to work our way through this problem.”

He urged Californians to conserve electricity and called for the construction of new power plants. He also said that ratepayers will need to bear some of the costs of protecting the utilities’ solvency, but he did not give specifics.

Davis said wholesale power sellers are driving the current crisis, but he did not discuss potential penalties, whether the wholesalers should provide refunds to the utilities, pay taxes on their profits or to what degree utilities should shoulder the burden of high energy costs.

Meanwhile, shifting power plant construction into high gear, California approved three new major facilities this month, capable of producing 1,570 megawatts of power. That’s as many plants as had been given the go-ahead during the previous 12 months. One megawatt is enough to power 1,000 homes for an hour.

The California Energy Commission’s actions bring to nine the number of power plants under construction or approved to begin construction. The first one to become operational should be a $275 million, 500-megawatt plant near Yuba City, which is planned to go on line next fall.

The commission has broad authority to decide which power plants get built, and where.

In the previous decade, with uncertainty over deregulation, an apparent abundance of power and modest increases in demand averaging 2 percent or less each year, no new major power plants were constructed.

But with the state’s electricity grid in turmoil, battered since June by skyrocketing wholesale prices, depleted imports and a significant number of plants down for maintenance and repairs, there is renewed interest in getting more power plants up and running.

In theory, California’s electrical grid has roughly enough energy to power 47 million homes. But much of that typically is not available, because plants are not in operation or power is shipped out of state under long-term contracts.

The Energy Commission said the nine licensed plants will supply nearly 6,300 megawatts when all are operating at capacity.

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