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Following marathon negotiations, California’s governor says he is close to a deal to fix his state’s broken electricity market. The plan involves California using its good credit to leverage cheaper power from wholesalers and then passing the power on to retail utility companies. Governor Gray Davis says the scheme will give utilities squeezed between skyrocketing wholesale prices and retail rate caps the necessary breathing room. The California Legislature gets a crack at the plan tomorrow, but the controversy is far from over, as Chris Richard from KPCC in Pasadena reports.

CHRIS RICHARD reporting:

Governor Davis has offered to buy the electricity at 5 1/2 cents per kilowatt hour over the next three years. But electricity suppliers say the governor is offering 3 cents less than their costs. Tom Williams, a spokesman for Duke Power, says companies would need longer contracts to make this work.

Mr. TOM WILLIAMS (Duke Power): The longer the contract, the lower the price because in the–in the out years, the cost of production comes down. You know, I guess the bottom line is any forward contract has to reflect the economic realities of the marketplace.

RICHARD: Our suppliers say the contracts must be at least five years long to pencil out. That might sound like nit-picking–a few cents difference or a couple years–but consumer groups say it might mean a windfall of billions of dollars for the power companies.

While negotiations continue, the state Legislature is preparing to authorize some sort of power-buying deal. Governor Davis has promised the agreement will mean no new rate hikes. But analysts say his proposal probably would make an emergency 9 percent hike, approved by the Legislature earlier this month, permanent. Doug Heller of the Foundation for Taxpayer and Consumer Rights says officials have no one but themselves to blame for the deregulation scheme that threw the state’s electric power network into crisis. And the voters will be watching this time.

Mr. DOUG HELLER (Foundation for Taxpayer and Consumer Rights): Governor Davis is–is doing everything he can to get his ducks in a row. But what I’m suggesting is that the–the public can’t be forced into this. You know, if they–if–if Davis says he–they have a deal, the Legislature will probably go with that. And if it’s a bad deal, they’ll be in trouble.

RICHARD: Over the weekend, a few legislators declared they’ll make sure the deal protects California consumers. One influential senator says before any purchase is approved, the utilities may have to write off some of their debts as uncollectible. Utilities don’t want to do that because it would hurt their stock prices. In Los Angeles, I’m Chris Richard for MARKETPLACE.

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