The Associated Press

State officials say they will set aside another $500 million to keep electricity crackling across California, bringing the cost of the state’s power crisis to taxpayers to $3.2 billion so far.

The announcement Friday by the state Department of Finance came on the same day a transcript of Gov. Gray Davis‘ meeting with the nation’s leading financial analysts was released. In it he told them that trying to resolve the crisis by raising electricity rates was out of the question.

If California did so, Davis said, voters would respond “in a heart beat” with a ballot initiative blocking the action and ending deregulation of the state’s power industry. A leading consumer advocate quickly agreed.

The $500 million is to be used to continue making costly short-term power purchases for the state’s two big cash-strapped utilities until a long-term solution to the crisis that has caused mandatory blackouts and near blackouts is found.

The state is buying about one-third of the power used by the customers of Southern California Edison and Pacific Gas and Electric, both of which have been denied credit by suppliers who fear they won’t be paid.

California plans to recover those costs by issuing $10 billion in revenue bonds in May, with the rest of that money going to finance cheaper, long-term power contracts.

Edison and PG&E say they’ve lost some $13.7 billion since early summer and are verging on bankruptcy because of soaring wholesale prices that California’s deregulation law blocks them from recovering from customers.

The price increases have been driven by high demand and a tight supply caused in part by a shortage of hydroelectric power in the Pacific Northwest and a number of power plants being taken out of service for repairs and maintenance.

The crisis eased some Friday as the state got through the day without declaring a power alert, although officials cautioned that supplies remained tight heading into the weekend.

According to the transcript of Davis’ Wednesday meeting with Wall Street’s leading analysts, electricity rate increases cannot be part of any solution because customers already face higher natural gas bills.

“If we were to pass on the full cost of electricity, an initiative to eliminate deregulation would pass in a heart beat,” he said.

From the moment that initiative qualified until court challenges were resolved, no power plants would be built in the state, worsening the electricity shortage, Davis said.

Indeed, several consumer groups already are threatening just such action next year if electricity rates rise.

“I think the governor’s right,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. “We wouldn’t have to do an initiative if he would take the actions necessary to bring these profiteers and utility companies under public control.”

But the financial analysts questioned whether California’s crisis could be resolved without rate increases.

“Other states seem to be able to handle the idea of rate increases, dramatic rate increases, to avoid such things happening,” said Richard Cortright of Standard & Poor’s.

Cortright also said he was surprised Davis failed to tell the analysts exactly how his plan would be financed.

“If it’s politically impossible to raise rates, how is it possible to strike a working deal so all the governor’s goals will be met?” he asked.

Bear, Stearns & Co. Inc., called Davis’ proposals “stopgap measures at best.”

Davis’ plan centers on buying the 26,000 miles of transmission lines owned by Edison, PG&E and San Diego Gas and Electric for perhaps as much as $7 billion, getting 10-year contracts from Edison and PG&E to buy power from their remaining plants at cost and convincing Edison‘s and PG&E‘s parent companies to help cover their debts.

He also told the analysts “a couple” of electricity suppliers have volunteered to accept less than the full amounts the utilities owe them in exchange for signing lucrative, long-term power contracts with the state. He has declined to say who they are.

Such major suppliers as Duke Energy and Reliant Energy said Friday they expect to be paid every penny.

Reliant, owed more than $300 million, would not “voluntarily offer to take partial payment,” said company spokesman Richard Wheatley.