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The state of California soon will become one of the biggest electric power brokers in the nation. Democratic Governor Gray Davis has signed legislation that will keep the state in the power business for the next 10 years. Reluctant Republican lawmakers voted to approve the measure, but only after they were persuaded it was the only hope of keeping California’s cash-poor utilities in business. But consumer groups called the plan a rate-payer bailout of the power companies. NPR’s Elaine Korry reports from San Francisco.
ELAINE KORRY reporting:
Many of the same lawmakers who voted to deregulate California’s energy market five years ago reversed course, approving a new plan that puts state government at the very heart of California’s power supply. The measure, AB-1X(ph), passed the state Assembly by the barest of margins. It empowers California to buy electricity through long-term contracts with out-of-state providers. The state would then sell power to Pacific Gas and Electric and Southern California Edison at prices far below what the utilities have been paying on the short-term spot market.
The bill’s author, Democratic Assemblyman Fred Keeley, says lawmakers really had no choice but to accept his plan.
Assemblyman FRED KEELEY (Democrat, California): I believe that the two investor-owned utilities would have gone bankrupt. There would have then been immediate loss of thousands and thousands of megawatts of power that are currently under low-cost contracts, which would have immediately gone into the wholesale market at several hundred times their current price. We would have been so far behind the eight ball in terms of stabilizing the situation that I am simply unable to comprehend the kind of economic devastation that would have ensued.
KORRY: That said, the solution won’t be cheap. California has already spent nearly $ 400 million in emergency funds to buy electricity on the spot market. AB-1X envisions spending an additional $ 600 million even before long-term contracts can be finalized. Then some real money goes on the line, $ 10 billion, in state revenue bonds that will be repaid by the utilities’ combined nine million rate payers. The state Public Utilities Commission could raise electricity rates for all but the poorest Californians, but in a news conference, Governor Gray Davis repeated his claim that rates won’t go up.
Governor GRAY DAVIS (Democrat, California): Because I believe we’ve done a very good job in putting together a long-term contracting team. We have some excellent bids before us. We’ve got them to extend the bids till today. That will get us off to a good start and encourage other generators to sell at the same price.
KORRY: Yet several Republicans are convinced that rate hikes are inevitable under the Keeley plan. Consumers would be allotted a baseline amount of electricity at standard rates, and households exceeding that allotment would be subject to surcharges. Consumer groups are also blasting the proposal. Doug Heller is with The Foundation for Taxpayer and Consumer Rights.
Mr. DOUG HELLER (The Foundation for Taxpayer and Consumer Rights): Once again, rather than looking for a solution that protects consumers, Governor Davis has pressed for a so-called market solution in which we depend on a system which has failed us, which means working with these energy companies that have been cheating us, have been threatening us with rolling blackouts and, in fact, have turned off the lights until they got every last dollar they wanted.
KORRY: Consumer groups point to an independent audit of the utilities’ books, which found the power companies are, indeed, in financial straits, but charges they could have done far more to head off their financial collapse.
As for the utilities, they maintain they’re entitled to recover $ 12 billion in debt directly from rate payers. They’ve had little to say publicly about the rescue plan. Pacific Gas and Electric issued a terse statement, calling passage of AB-1X, quote, “a positive step,” but concluding that much remains to be done before Californians can declare this crisis over.