California generators pressed to cut prices

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Davis threatens to take over plants

The Washington Times

SACRAMENTO, Calif. – California Gov. Gray Davis warned power generating companies last night that if the price of electricity in his state does not come down and the supply go up, he might order the state to take over generating facilities.

“Never again can we allow out-of-state profiteers to hold the people of California hostage,” Mr. Davis said in his annual State of the State speech.

The governor, frequently mentioned as a 2004 Democratic presidential possibility, called the state’s 1996 deregulation plan a “colossal and dysfunctional failure,” saying it had let “profiteering companies from out of state” raise wholesale electricity prices by 900 percent.

The governor announced a plan to restructure the energy market in California completely and make it criminal for owners of California power plants to refuse to sell electricity within the state. He spoke just a day before he planned to go to Washington for an emergency energy crisis summit meeting with senior Clinton administration officials.

And Mr. Davis said that if power producers don’t cooperate, he would act on his own.

“If I have to use the power of eminent domain to prevent power producers from driving our utilities into bankruptcy and our consumers into darkness, I will,” he said.

After outlining his complete plan – which would require a $1 billion appropriation by state legislators – he added that “Everyone should understand there are other more drastic measures I can take if I am forced to do so.”

He also advocated creation of a new state agency to “buy and build power generating facilities.” That new agency would have the power to condemn existing generating plants and buy them up at fair market value.

The Davis speech was a response to a situation that has seen California’s three largest utilities – Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison – threatened with bankruptcy and consumers subjected to blackouts and sky-high prices.

So far, the state has allowed a 10 percent price increase, but the companies warn that unless they get much more, they’ll go bankrupt.

That threat led to a brief panic on the New York Stock Exchange last week, when rumors spread that the utilities might default on large bank loans.

Consumer advocates, who have been critical of Mr. Davis’ previously tepid response to the power shortage and price increases, were pleased by his new toughness.

“This was more than we expected,” said Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, which has already begun circulating a 2002 ballot initiative that would call for state government to buy up power plants and set up a public power supply agency.

“For the first time, the governor articulated the kind of bold plans we have advocated for the last two months,” he said. “He’s at last talking about seizing the power plants and he’s finally sending a message.”

Mr. Davis was responding to the results of the 1996 partial deregulation law that called for utilities to sell their power plants and then buy electricity back at market rates. The plan’s backers envisioned a multitude of power plant owners, but only eight companies have emerged to dominate the market.

These firms, several from outside California, are free to sell the power from their generators anywhere in the nation at market rates. This has forced California’s utilities to turn to emergency electricity supplies, raising their costs by as much as 900 percent, Mr. Davis has charged.

“We lost control of our power,” Mr. Davis said. “As a result, on any given day, 10 percent to 12 percent of the power generated in California leaves the state for even higher prices than they get here. Think about it: They’re refusing to sell us our own power.

“Make no mistake,” he added, “we will regain control of our electricity and our future.”

Consumer Watchdog
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