San Jose Mercury News

SACRAMENTO, Calif.–Step by step during the energy crisis, California has transformed itself into a power baron, spending billions on electricity and looking to buy 26,000 miles of transmission lines.

But the state is about to take a far more significant step in trying to gain control of its energy destiny: adopting a sweeping plan to build its own power plants and become one of the largest public power authorities in the nation.

Under the proposal, a new group of seven state officials could spend $ 5 billion or more to build enough generators to supply about 15 percent of the state’s power. It would also have the extraordinary power to seize existing plants around the state.

“This is the one place where we’re actually crafting an energy policy in response to a crisis,” said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights.

Although the measure has drawn little attention in a capital focused on preventing disruptive blackouts this summer, it has moved swiftly through the Legislature and could reach Gov. Gray Davis as soon as today. Davis, who has repeatedly promised that the state will control of its energy future, has endorsed the idea.

“It comes down to a choice,” said state Treasurer Phil Angelides, who is sponsoring the plan. “Do we wan to hope and pray that the private sector builds enough, or do we exercise some prudence to build enough so that we can control our own destiny.”

The goal for supporters like Angelides is to make sure the state builds and owns enough energy so that it no longer finds itself at the mercy of a dysfunctional market that has forced the state to spend $ 50 million a day to buy electricity.

Senate President Pro Tem John Burton, D-San Francisco, and other public power advocates view this proposal as a hammer California can use to drive down the prices charged by out-of-state power companies, which state and federal officials have accused of gouging California.

But critics worry that the proposal may create inefficient and expensive bureaucracy that could end up in the kind of financial boondoggle that nearly toppled public power agencies in New York and Washington.

“I am skeptical of the idea,” said Severin Borenstein, director of the Energy Institute at UC-Berkeley. “I am far from convinced that the state should own generation facilities.”

As a model, supporters of the public power authority idea point to New York, where the state has spent 70 years building a power company that produces about a quarter of the state’s energy needs.

But even members of the New York Power Authority have a hard time seeing the similarities.

“I can’t say that it wouldn’t work, but I have a hard time envisioning it,” said Jack Murphy, a spokesman for the authority.

“It’s like it’s going to be a grown-up power authority from the start,” he said. “We kind of grew one plant at a time and the purpose was not a crisis.”

New York set out in the early 1900s to prevent private companies from harnessing the famous waters that cascade over Niagara Falls. At the time, former president and New York governor Theodore Roosevelt backed the plans to combat “waterpower barons” from taking over state rivers.

But it took decades to get the project off the ground and the agency has been criticized for offering poor service, making bad business decisions and creating an inefficient bureaucracy.

Even now, the agency is drawing criticism for not building enough plants in recent years and for scrambling to prevent blackouts this summer by setting up emergency plants in places being challenged by environmental groups.

Ashok Gupta, senior energy economist with the Natural Resources Defense Council in New York, said the state public power programs did a good job for years in backing conservation. But he said the board appointed by the governor isn’t acting in the public interest. Consumer activists have sued the state agency and accused it of ignoring environmental and health concerns to set up emergency power plants to get through the summer.

“It doesn’t work that well because there is little or no accountability,” Gupta said. “In New York State our public power authority basically ignores public input and that says a lot.”

Critics also point to a debacle even closer to home: Washington State. In 1983, the state public power authority was forced into what was then the largest bond default in the nation’s history in a failed bid to build two nuclear plants.

The financial disaster has left the Washington Public Power Supply System tagged with an unwanted nickname: Whoops!

Supporters say they understand the dangers. Whether it is a public authority or a private business, anything run by human beings runs the risk of failing.

But Angelides and others contend that the benefits far outweigh the risks.

Some point to Los Angeles, where the head of the local power authority, S. David Freeman, has emerged as a kind of folk hero in the energy crisis. In 1997, Freeman stepped in to head a beleaguered and nearly bankrupt Los Angeles Department of Water and Power. He slashed jobs, cut the debt and is credited with keeping cheap electricity flowing to the city’s 3 million residents.

Freeman has become a close adviser to Davis on the energy crisis, led the negotiations with power companies for long-term contracts and is mentioned as a possible candidate to run the new state power authority.

The new California power authority aims to work with private companies, not drive them out of the market, and follow in the footsteps of other public power authorities that have a strong track record of providing the cheapest power available.

Advocates of public power are not bothered by the contention that such entities would deter the private power companies that have been making millions in profits during the energy crisis from building more plants.

“I find it difficult to think of anybody shedding tears for these guys,” Burton said during the Senate floor debate over his bill. “There has been no one since the days of the robber barons that has gotten away with what these guys have gotten away with.”