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Los Angeles Times

Gov. Gray Davis pulled out some harsh words during his speech Monday night on California’s electricity crisis. Now come the harsh realities.

A number of his proposals–especially those aimed at reining in electricity wholesalers–face legal and logistical obstacles that may undercut the effectiveness of his plan for a quick way out of the deregulation morass.

Whether it’s persuading consumers to conserve or forcing electricity producers to stay on line, the governor must draw together a diverse coalition with vastly different interests.

For example, Davis, who has prided himself on his frugality, has asked the Legislature for more authority to finance power plant construction or, in the extreme, to seize plants using the power of eminent domain.

Either alternative would be hugely expensive.

Karl Manheim, a constitutional law professor at Loyola University in Los Angeles, said there is no question about the state’s authority to exercise eminent domain.

“The only condition is that they must pay fair market value for the property they acquire,” Manheim said. “Redevelopment agencies do it up and down the state. The only troubling issues are the valuation issues.”

And potential lawsuits.

All eminent domain does “is change the ownership from the private sector to the public sector, but it doesn’t do anything to solve the problem,” said Woodland Hills attorney Dan Douglass, who represents an association of power sellers and marketers. “We need new power, not a change of ownership.”

He predicted that such a move “would undoubtedly lead to lengthy and protracted litigation.”

Davis also asked the Legislature for authority to force power plants that have shut down for “unscheduled maintenance” to get back to producing power. The governor said he wanted to hire 50 investigators for the Public Utilities Commission to make sure that happens.

“To pass a law authorizing the Public Utilities Commission to engage in this kind of enforcement activity might very well violate the interstate commerce clause of the U.S. Constitution,” said Douglass.

Davis’ commitment to energy conservation–he proposed spending $ 250 million more–found few critics but a few skeptics.

Arthur H. Rosenfeld, one of five members of the California Energy Commission, said the money could be used to encourage simple changes that will save California huge amounts of electricity.

For example, when a roof needs to be replaced, he said, owners should choose light-colored materials over dark.

That alone can save 20% of the air-conditioning costs of a one-story building.

Another great way to use the money Davis wants to earmark for conservation, Rosenfeld said, would be to encourage businesses to install $ 500 meters that automatically dim lights and raise or lower thermostats based on the price of electricity.

Such “real-time” meters are connected to the Internet and would encourage people to shift their energy usage from peak periods and do such things as run pool pumps at midnight, not in the afternoon.

“If everybody in the state did that,” he said, “we would save something like 10% of all peak electricity.”

He compared the potential savings to the output of 10 modern power plants.

New appliances are a major source of electricity savings, Rosenfeld said, noting that a modern refrigerator uses roughly a third of the electricity of one built 25 years ago.

Conservation, said Rosenfeld, “is the only thing the governor can do in a hurry.”

With $ 50 million dedicated to energy conservation last summer by the Legislature and Davis, such programs are underway, said Claudia Chandler, spokeswoman for the Energy Commission.

For example, $ 10 million of that money will be used to replace incandescent traffic light bulbs with bulbs that are 75% more efficient. The replacements should save enough electricity to supply 7,000 homes, she said.

Similar savings should come through an effort to switch pumping at waste water treatment plants to off-peak hours.

All this sounds great, if consumers buy into it.

“I think there’s a tremendous amount of distrust of the utilities and their claims of financial trouble and claims that there’s a shortage of power and claims that conservation will help the situation,” said Severin Borenstein, director of the University of California Energy Institute in Berkeley.

In fact, a Los Angeles Times poll of several hundred Californians last week found that 54% believe there is no true shortage of electricity plaguing the state. Many of those polled instead blamed greedy power producers for manufacturing a shortfall.

Robert Michaels, an economics professor at Cal State Fullerton who tracks deregulation, said conservation efforts have been tried before and would hardly make a difference.

“You already have a great increase in energy efficiency anyway,” Michaels said. “How much more can be squeezed out? All Davis can do is exhort you to do something like keep your lights off for 7% more time, or put computers to sleep instead of leaving them on all the time. It’s so small it doesn’t matter. They’re tiny percentages. And it’s going to take a long time, in any case.”

Another of the key issues facing the state is the future of the three major utilities, each of which is in varying stages of financial distress. Southern California Edison and Pacific Gas & Electric have said they are close to bankruptcy because of the skyrocketing cost of wholesale power.

While Davis said he wants to save those utilities from bankruptcy, he offered no specifics for bailing out Edison, PG&E and San Diego Gas & Electric. The lack of detail worried utility executives.

“While the governor’s statements are welcome, we are concerned that unless strong steps are taken over the next few days, the financial crisis facing California’s utilities will bring us to the point where we can no longer buy electricity and gas for our customers,” PG&E said in a statement.

Wall Street and the major bond-rating agencies are looking to Davis and the Legislature for a solution to the crisis. But after hearing Davis’ address, Moody’s Corporate Finance Director Susan D. Abbott said she was disappointed. The governor was not specific about how he intends to keep the two utilities out of bankruptcy court.

“He talked a lot about solving the long-term problems of the restructuring of the industry, but on the issues about the immediate financial crisis with the utilities, the only thing I heard him say was that he’s asking the Legislature to work with him to make sure these companies don’t go bankrupt,” Abbott said.

Some lawmakers have discussed floating bonds to pay the utilities up front for their costs, then charging customers small amounts each month over many years to pay off the bonds.

Consumer advocates loathe that idea as a bailout. Davis made no mention of anything that came close to supporting a bailout, but consumer advocates noted that he also did not rule it out.

“One item was absent from his long list of proposals,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica. “That’s a promise to the ratepayers that they will not be forced to bail out the utilities.”

Consumer Watchdog
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