Energy-starved California crafts relief plan

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The Associated Press

Lawmakers are considering a plan under which California would issue bonds to cover the multibillion-dollar debts of its two biggest electric utilities and make customers pay the money back over a decade.

A consumer advocate immediately called the proposal a “bailout” and promised to fight it with a voter initiative campaign.

“If that’s what they plan to do, they’ll have to contend with a ratepayer revolt at the ballot box in 2002,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

Lawmakers began fashioning the plan after the state received dozens of bids Wednesday from suppliers willing to sign long-term contracts to sell power to energy-starved California.

The offers bought the Legislature some time to work on a long-term solution to a crisis that resulted in rolling blackouts last week and has left the two utilities some $12 billion in debt. The state is buying power on the utilities’ behalf because their credit is practically worthless.

Word on the plan came as the keeper of the state power grid announced it might have enough electricity Friday to lift a Stage 3 alert – called when reserves approach just 1.5 percent – for the first time in 11 days.

Under the proposal discussed Thursday, the state would issue revenue bonds that Southern California Edison and Pacific Gas and Electric Co. customers would pay back over several years, said Assemblyman Bill Campbell, the Republican minority leader.

In exchange, the state would get long-term options that would let the state buy SoCal Edison and PG&E stock at a low price. If the price goes up, the state could sell the stock and use the profits to pay off the bonds.

Millions of customers also would pay back the bonds through an extension of recently approved rate increases, Campbell said.
Those increases – 9 percent for residential customers and 7 to 15 percent for businesses – could stay in effect for a decade.

“It’s not a bailout,” Gov. Gray Davis, who supports the proposal, told CNN on Thursday afternoon. “It accomplishes two purposes: It provides the funding to revitalize the utilities, but it lets ratepayers know they will gain as the utilities gain.”

The bill’s sponsor, Assembly Speaker Robert Hertzberg, D-Van Nuys, told the Assembly energy committee that the plan wouldn’t require taxpayer money. The utilities have not yet agreed to the proposal, he said. Talks may continue into the weekend.

Consumer advocate Rosenfield sharply criticized the plan, saying it would be financed through “hidden charges on people’s utility bills for the next 10 years.”

“They’re desperately looking for a way to make it look as if the ratepayers are going to get something in exchange for giving the utilities $12 billion to bail them out for the mistakes they’ve made under deregulation,” he said.

SoCal Edison and PG&E had no immediate comment on the plan.

Davis has said he and lawmakers will be able to fix California’s power woes before the state exhausts a $400 million emergency fund it set aside last week to buy power on the short-term market.
He was particularly confident Wednesday after 39 power suppliers bid on long-term contracts to provide energy to California. The contracts would last six months to 10 years.

Although the average bid of $69 a megawatt hour was higher than the $55 officials had hoped for, it was still far lower than the $600 the state has sometimes had to pay on the open market.

The Senate energy committee approved a measure 6-2 Thursday that would let the state enter into the long-term contracts and sell the power to consumers using Edison‘s and PG&E‘s infrastructures, including their transmission and billing systems.
The committee removed a provision that would have capped the price the state could pay at 5 1/2 cents per kilowatt hour, instead directing the state to buy power that could be paid for at customers’ current rates.

Davis said he and lawmakers will “move heaven and earth” to agree on a solution to the crisis by Feb. 6. That’s the expiration date of an emergency order by the Bush administration directing electricity and natural gas suppliers to sell to California despite concerns about Edison‘s and PG&E‘s solvency.

Underscoring the state’s dilemma, the California Independent System Operator extended a Stage 3 alert to a 10th straight day Thursday. A Stage 3 means electricity reserves are so low blackouts could be ordered, but the ISO said that wouldn’t be necessary.

The ISO predicted Friday would be the first day in nearly two weeks that no Stage 3 power alert would be called. It’s possible that with demand down at the end of the work week, the ISO might downgrade its alert to a Stage 1 with reserves at around 7 percent, the first time reserves have been that high in weeks, spokeswoman Lorie O’Donley said.

“My observation today is that they were able to line up power earlier. We weren’t doing as much hour-by-hour buying today,” said O’Donley, adding that she didn’t know whether the state’s power-buying was a factor in the improved forecast.

The state’s tight power supply has been blamed on California’s move toward deregulation, as well as in adequate hydroelectric power, high natural gas prices, transmission glitches and power plant repairs.

SoCal Edison and PG&E have been paying high wholesale prices for electricity but have been prevented under the deregulation law from passing those costs on to their customers.

Bush administration officials said Thursday that President Bush is prepared to let California roll back its air pollution requirements on power plants to try to ease the electricity crisis.

California pollution control officials, however, said environmental restrictions have not interfered in power plants operating at maximum capacity. They said the state already has made some adjustments in air rules – when needed – to keep power flowing and does not need a waiver.

Two senior Bush administration officials said the president is expected to raise California’s power problems with Mexican President Vicente Fox when the two leaders meet Feb. 16, in an attempt to spur construction of power plants in Baja California.

Possible expansion of electricity shipments from Mexico to California also might be discussed, but energy experts said Mexico faces its own growing power demands and probably will not want to expand shipments north.

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