The Associated Press State

Gov. Gray Davis is proposing that the state enter into long-term contracts with electric utilities or wholesalers to guarantee a stable price for the state’s power supply, officials said Wednesday.

The state most likely would buy the power from wholesalers and sell it to utilities, Davis spokesman Steve Maviglio said.

Davis wants to lock in a fixed cost for California’s power for the next five to nine years to resolve the current power crunch. It would take legislation for the state to actually to buy the power and resell it to utilities.

The governor proposed the plan to energy suppliers and federal officials during a late night meeting Tuesday in Washington, D.C. Negotiations continued Wednesday, and Davis and other state leaders plan to meet again this weekend to continue top level talks.

Two of the state’s huge investor-owned utilities, Pacific Gas and Electric Co. and Southern California Edison, say they are losing money because they must buy electricity in the wholesale market, where prices have unexpectedly tripled and sometimes quadrupled over the past year.

They’re also under a freeze on their customer rates that won’t expire until March 2002, although the state Public Utilities Commission recently approved temporary rate hikes of 9 percent for residences and 7 percent to 15 percent for businesses.

Meanwhile, an emergency federal Energy Department order that has helped keep electricity flowing to California since Dec. 14 was set to expire at midnight Wednesday after state officials missed a key deadline. The order required out-of-state electricity generators to keep selling to California utilities despite their poor credit.

The department said it would only consider extending the order if state officials had guaranteed by noon Tuesday that California would cut its peak electricity use by 5 percent over the next week to show the state has started conserving.

Davis called the missed deadline “a bureaucratic snafu,” and didn’t push for an extension because he believes providers aren’t now likely to cut off power to the state’s utilities based on the ongoing negotiations, Maviglio said.

Also Wednesday:

 

-Pacific Gas & Electric, already denied credit to buy electricity, warned Davis it is running low on credit to buy natural gas even as it continues negotiating with suppliers. It said Davis may have to use his emergency powers to keep gas flowing if suppliers will no longer sell to the company. Davis has wide discretion to safeguard public safety, but it initially appears this problem falls under the federal government’s jurisdiction, Maviglio said.

– PG&E canceled a $110 million dividend of 30 cents per share it had promised to pay stockholders Jan. 15. And it formally warned the federal Securities and Exchange Commission that it has run out of credit and is risking bankruptcy despite rate increases approved last week.

PG&E filed papers with the SEC last week warning that it only has enough cash to buy power through early February. Southern California Edison filed similar papers last month.

– The Independent System Operator, keeper of the state’s power grid, declared a Stage 2 emergency as it anticipated what it expects to be the most severe storm so far this winter.

Storm-tossed waves that could rise as high as 28 feet forced the Diablo Canyon Nuclear Generating Station to cut to just 20 percent of normal output to avoid clogging its intake valves with kelp and other marine life. Each of the station’s two 1,100-megawatt generators provide enough electricity to serve about a million people.

Davis said long-term contracts may be “the light at the end of the tunnel” for California’s power problems.

“I think there is a distinct possibility that we could contract on a long-term basis for power that is reliable and at a very attractive rate,” Davis said. “If that requires some state involvement, whether the state purchases the (power) or the state enhances the credit of the utilities or the state guarantees it, that’s a worthwhile investment.”

He said the proposal would resolve the current power crunch without another rate increase. The state’s cost could come out of the $1 billion Davis proposed go for energy conservation in next year’s budget.

Davis said he hopes for an agreement among all the parties within two months.

State officials meeting in Washington, D.C., late Tuesday offered to pay at least 5 cents per kilowatt hour over the life of the contracts – far less than 12 cents to 15 cents that power generators are currently charging on the spot market and even less than the 6.5 cents per kilowatt hour utilities can pass on to consumers.

The lengthy contracts would allow the utilities to recoup their costs in the long run as electricity costs drop and more efficient power plants come on line, said Maviglio and Assembly Republican Leader Bill Campbell, R-Orange, who also participated in Tuesday’s meeting.

Senate President Pro Tem John Burton, D-San Francisco, said the state’s proposal would give the utilities PG&E and SoCal Edison enough of a profit to let them restructure the more than $11 billion in debt they have incurred since prices skyrocketed last year.

Spokesmen for PG&E and SoCal Edison did not immediately respond to messages left at their offices Wednesday afternoon by the Associated Press seeking comment.

Consumer groups objected that the proposal could lock Californians into paying higher electric rates for years, long after the cost of electricity falls as generating power increases.

“What looks like a great deal now in this artificially inflated market in two or three years could be a disaster,” warned Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. “The worst time to be negotiating these things is when the utilities have a gun to your head.”

It’s worth the risk to end the uncertainty over long-term rates, responded Campbell.

“Given the alternatives, the most important thing is to get the rates stabilized for Californians,” Campbell said.

An Assembly committee is expected to consider two bills in special session Thursday that could come up for a full Assembly vote Friday.

The first would change the board of the Independent System Operator to eliminate officials of power generating companies, which consumer groups say sets up a conflict of interest.

The second would require utilities to keep their current electric generation facilities. California’s deregulation law currently requires them to sell those power stations.