California governor proposes state power line purchase

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The Associated Press

Plunging California deeper into the energy business, Gov. Gray Davis proposed a multibillion-dollar plan Friday to rescue two utilities from the brink of bankruptcy in part by buying thousands of miles of power lines.

The plan would require the parents of Southern California Edison and Pacific Gas and Electric Co. to help pay off the utilities’ debts, which both say are approaching $13 billion due to soaring wholesale prices the state’s deregulation law bars them from passing onto customers.

As a measure of just how wild California’s power market has become, a state grid official said suppliers have asked for as much as $9,999 for one megawatt hour of electricity, enough power for roughly 1,000 homes.

Jim Detmers of the Independent System Operator said grid officials refused to pay that price for the last-minute power they buy for utilities to avoid blackouts, but refused to say what the ISO is paying.

Davis said his plan would help put the utilities back on firm financial ground. PG&E executives were quick to criticize Davis’ plan, however, saying the company “is not seeking a rescue or a bailout.”

“We are asking the state simply to follow the law, which allows us to recover wholesale power costs incurred for our customers, and which recognizes that our rate freeze should have ended last summer,” the utility said in a written statement.

PG&E and Edison – who together serve nearly 9 million residential and business customers – have filed lawsuits seeking additional rate increases to cover the full cost of wholesale electricity. State regulators granted rate hikes of 7 to 15 percent last month.

Davis hopes to complete a debt-relief plan before a March 5 hearing on Edison‘s case. His proposal would require Edison and PG&E to drop the lawsuits.

SoCal Edison CEO John Bryson refused to comment on Davis’ plan.

Davis declined to put a dollar amount on his proposal, which also includes the purchase of power lines owned by the state’s third investor-owned utility, San Diego Gas & Electric.

Davis said two of the three utilities were open to the plan, declining to elaborate. The Davis administration invited the utilities to resume negotiations Monday.

Assemblyman Fred Keeley said the state could pay $7 billion for the power lines; Davis would say only that talks would start at their book value, which the state Public Utilities Commission pegs at a total of $3.8 billion for all three.

Davis said the plan would be financed without rate increases for utility customers.

“Ratepayers did not ask for deregulation,” Davis said. “They were promised that rates would go down … Obviously this system was flawed from its outset.”

Davis did not mention that rates are scheduled to increase next year for Edison and PG&E customers. Under the 1996 deregulation law, the pair’s ratepayers saw a 10 percent rate reduction, but only until early 2002.

That rate cut will likely expire as planned, Davis spokesman Steve Maviglio said.

Assemblyman John Campbell, R-Irvine, said Davis’ plan, combined with state power-buying for Edison and PG&E under a law he signed last month, would amount to more than $20 billion spread out over three sets of revenue bonds that would be paid back by the utilities’ customers.

Consumer advocates said they are worried a rate increase will be buried in the governor’s debt-relief plan.

“This is shaping up to be a blowout, not even a bailout,” said Harvey Rosenfield of The Foundation for Taxpayer and Consumer Rights, who has vowed to wage a “ratepayer revolt” at the ballot box in 2002 if such a plan passes.

Legislation signed by Davis last month extended for up to a decade the temporary rate increase the PUC granted Edison and PG&E earlier in January.

Davis’ proposal would be financed at least in part with revenue bonds that would be paid back with part of utility customers’ bills. The bonds may also be repaid using transmission fees charged to power wholesalers and ratepayers.

Critics, including Assembly Republicans, note that the transmission system is old and in need of costly repairs – perhaps adding $1 billion a year to the state’s expenses.

Davis said he considers the chance to ease transmission bottlenecks now adding to the state’s power crunch one of the plan’s plusses.

The line upgrade could be financed by the transmission fees, or by expanding the revenue bonds paid back by ratepayers, Maviglio said.

Davis also proposed that the state buy “conservation easements” to take control of fragile utility-owned wildlands around hydroelectric dams, protecting the tracts from sale or development. He did not specify how many acres were involved or the locations.

The plan would let the utilities issue revenue bonds to cover any of their remaining bills. Those bonds, plus the two sets of state-issued revenue bonds, would be paid back by their customers.

Davis also wants the PUC to extend a price cap on power that the utilities generate at their plants for 10 years. Those rates are currently capped for five years.

A separate but similar plan is being discussed for SDG&E, Maviglio said. SDG&E rates tripled last summer when the utility’s rate freeze lifted, allowing it to charge customers for the full cost of wholesale electricity.

Davis signed legislation late last summer spreading SDG&E‘s recovery of wholesale power costs from consumers over at least two years.

The utility, which has 1.2 million residential and business customers, says that due to the rate-averaging, it has yet to recoup more than $400 million in wholesale costs from consumers.

Davis said he hoped the state’s work to help the utilities out of debt would convince creditors to give them more time.

“I hope and believe this takes bankruptcy off the table,” Davis said.

However, power wholesalers expressed increasing frustration, and said that while they are pleased Davis is taking action, time is running out.

“It’s got to be fixed in the next week,” said Jan Smutny-Jones, executive director of the Independent Energy Producers Association.

No one wants the utilities to go bankrupt, but wholesalers also have bills to cover, he said.

Keeley, D-Boulder Creek, said enough of the Legislature’s majority Democrats appear to support the Democratic governor’s proposal to pass it.

The transmission sale – which would cover 26,000 miles of power lines, 60 percent of California’s transmission system – is covered under a bill by Senate leader John Burton awaiting a Senate vote.

As the governor released his proposal, a federal judge extended until at least Wednesday an order forcing three wholesalers to keep selling power to the managers of the state grid despite worries Edison and PG&E, major recipients of that emergency power, are unable to pay for it.

California has been a Stage 3 power alert for more than a month, with the ISO searching for enough electricity to prevent reserves from falling to 1.5 percent or lower.

The state has scrounged electricity for weeks due to a combination of high demand, a tight supply driven in part by short hydroelectric power in the Pacific Northwest, and high wholesale natural gas and electricity prices. Rolling blackouts hit the northern two-thirds of California twice last month.

Davis’ debt-relief plan is one of several proposals aimed at resolving the crisis.

He earlier signed legislation that lets the state spend an estimated $10 billion to buy power for customers of Edison and PG&E, both denied credit by suppliers, and has pushed for faster state and federal approval of new power plants, a move backed Friday by President Bush.

The power-buying law Davis signed last month lets the state enter into cheaper long-term contracts lasting from several months to a decade. Until then, it is spending about $45 million a day in the costly spot market to keep the lights on for Edison and PG&E customers.

The state has committed close to $2 billion since early January to buy electricity for the utilities’ customers.

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