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Los Angeles Times

The state Legislature on Thursday approved spending hundreds of millions of dollars of taxpayers’ money to keep power flowing in California, eating into the state’s multibillion-dollar surplus to purchase only days worth of electricity.

With top state leaders acknowledging for the first time that they might never recover the money from the battered and nearly bankrupt utilities, lawmakers reluctantly authorized the governor to spend $ 400 million, a grim admission that the state faces a social, economic and public safety disaster.

“People are going to say it’s a bailout for the utilities. It isn’t,” said state Senate President Pro Tem John Burton (D-San Francisco). “All utilities do is serve as a conduit for providing this service. They say it’s a bailout for the generators who profit from this and are making more money than God. . . . What this does is guarantee that the lights in the state of California” stay on.

On Thursday, when the lights did go out for several hours in Northern and Central California, people again coped with annoying but not life-threatening circumstances. State energy regulators were optimistic that they could keep the lights on for the next several days, as new sources of supply become available. But they were far from jubilant. California paid as much as $ 800 per megawatt-hour, compared with $ 30 a year ago.

Among the developments in the power crisis Thursday:

* President-elect Bush told interviewers that he opposes federal price caps on wholesale power and suggested that California relax its environmental regulations to keep power plants running at full steam. State officials had pleaded with federal energy officials for price caps, which the Clinton administration also has been reluctant to restore.

* Southern California Edison missed another bill payment, this time for $ 215 million in wholesale electricity purchases. In response, the state Power Exchange begin seizing Edison‘s long-term contracts, which it planned to resell to pay off the company’s debt.

* The quasi-private agency that operates the state’s power grid ordered rolling blackouts through sections of Northern and Central California from 9:45 a.m. until about noon, cutting power to about 675,000 homes and businesses. Three out-of-service generating stations unexpectedly returned online, giving the state enough power to limp through the day.

* The first of the earnings reports from out-of-state electricity generators showed Duke Energy had doubled its earnings and more than doubled its revenues last year. Consumer advocates have criticized such generators for profiteering on California’s woes.

* Gov. Gray Davis signed two bills aimed at easing the crisis, and urged the Legislature to quickly pass a bill appropriating $ 400 million for the state to begin purchasing power. In effect, the state Department of Water Resources would function as a power agency, buying electricity and selling it to consumers. PG&E and Edison would become, for a time, little more than billing agents for the state.

Grim Mood in Capitol

The mood was somber in Sacramento, where the damaged and partly charred Capitol–the apparent target of a rampaging truck driver earlier in the week–served as a backdrop for deliberations that sought to reconstruct California’s shattered electricity system.

State Treasurer Phil Angelides expressed the mood with a touch of hyperbole when he told reporters: “It is a tragedy that right now we’re in a Third-World-nation situation.”

To keep electricity flowing, some legislators said California must begin spending the state’s emergency reserve fund and have it replenished with an expected state surplus. Other lawmakers hoped to spread out the effect by using bonds to pay for the power over time.

“There is no guarantee we will ever get the money back,” state Sen. Debra Bowen (D-Marina del Rey) said. “However, if the lights go out in one-third of the state, we are talking about the possibility of riots and looting. People could die.”

The same problem that has threatened the very existence of the state’s largest utilities–wholesale prices that have risen spectacularly in the last eight months–also promises to pin a hefty price tag on any state plan to keep the lights on.

Under the emergency plan outlined Wednesday night by Davis, the Department of Water Resources would buy power in the costly spot market over the next few days to stave off mass blackouts. In the current, sky’s-the-limit electricity market, however, that money will last only days.

Thus, the Legislature and governor may need to approve far larger appropriations, many lawmakers warned.

The current measure, sponsored by Burton, would give money to buy power under short-term contracts. On Thursday, it passed two committees, the full Senate on a 34-2 vote and the Assembly, 72-0.

“We are giving away the store,” said Sen. Paul Koretz, (D-West Hollywood), “and we are getting nothing in return.”

Davis declined to say how much the state will have to spend to keep the electricity flowing. Other sources estimate his proposal could end up costing close to $ 1 billion.

“We need short-term authority to purchase power and keep the lights on,” Davis said. “Previous generations fought wars, survived Depression. . . . We’re being asked to keep the lights on.”

Burton and Angelides announced Thursday that Democrats would introduce legislation to make the state a major player in the power business, conjuring images of then-Gov. Franklin D. Roosevelt’s creation of the New York Power Authority.

Assemblywoman Jackie Goldberg (D-Los Angeles) said the Los Angeles Department of Water and Power has proved to be a reliable, inexpensive source of electricity for city consumers.

Lawmakers also hope to pass a bill that would continue California power purchases on a long-term basis, but place a cap on the price the state will pay and require energy providers to sign long-term contracts.

Power generators have balked at the price cap suggested by Davis and legislators–5.5 cents a kilowatt-hour–and it remains to be seen whether any supplier will sell that cheaply.

Some consumer advocates characterized Davis’ plan as caving in to greedy power companies.

“A bailout is a bailout, direct or indirect,” said Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

Burton said he had expected criticism.

He acknowledged that California will not be repaid for much of the money. As sticker shock buzzed through the Capitol, some lawmakers reacted with anger at what they saw as Davis’ inability to head off disaster.

In a display of defiance, four freshman Republican Assembly members held a news conference outside the marble entrance to the governor’s office to denounce Davis. They questioned why he had taken so long to declare a special session on the energy crisis, noting that former Assembly Republican leader Scott Baugh had called for one last August.

“Nero fiddling while Rome burned,” said Assemblyman Jay LaSuer (R-La Mesa).

“There is the potential to rapidly deplete any surplus we might have had,” said Assemblyman Keith Richman (R-Northridge). “That could have been used on roads, schools, all the needs of this state.”

The only good news Thursday was the forecast of no more blackouts through the weekend.

The state averted blackouts Thursday through a combination of conservation and the unexpected return to service of two California power plants and a third plant out of state. The three plants shot 1,500 megawatts into the statewide grid, while conservation added another 600 or so. The state’s peak demand Thursday was estimated at about 31,000 megawatts. One megawatt is sufficient to power about 1,000 homes.

“Conservation really can make a huge difference,” said Kellan Fluckiger, chief operating officer of the California Independent System Operator, which operates the grid.

Fluckiger was optimistic for the short term. “Unless a lot of bad things happen we’ll get through tomorrow and the weekend without interruptions,” he said. In seven to 10 days, he added, an extra 4,000 megawatts should become available as plants finish repairs.

He remained pessimistic about the state’s energy future, calling the chance of blackouts during hot summer days “high . . . probably 50-50.”

During the summer the state needs far more power than it does in January. He acknowledged that the financial condition of the state’s two biggest private utilities was now complicating matters.

PG&E said it expects its trading privileges at the California Power Exchange to be suspended today, which would leave the state’s largest utility unable to buy power beyond what it generates from nuclear and hydroelectric sources. The Power Exchange is the state’s primary power market, created by the 1996 restructuring of the electricity industry.

PG&E said it may have to black out 70% of its 14 million power customers–including hospitals, police stations and fire stations–at least once daily if it can’t buy electricity.

Edison Misses Another Payment

Meanwhile, Edison failed to make a $ 215-million electricity payment to the Power Exchange, and the Pasadena-based nonprofit agency began seizing long-term contracts that Edison paid for months ago. The Power Exchange is reselling them to recoup the money that generators are owed for power used in December.

Edison objected, saying it technically is not in default to the exchange because forces beyond the utility’s control–referring to the Jan. 4 decision by the California Public Utilities Commission to grant a limited rate increase–are keeping the utility from meeting its obligations.

“We don’t like this, obviously,” Edison International Chief Executive John E. Bryson said. “It’s regrettably one more respect in which our ability to serve our customers as well as we had planned to do is jeopardized by this financial weakness.”

Edison and PG&E got more bad news from the state. Under one of the two bills signed by Davis, the two companies won’t be allowed to sell any of their remaining power plants, something both had hoped to do. Under the 1996 deregulation act, the utilities aren’t allowed to raise rates until 2002–unless they sell off their power plants.

Edison agreed last May to sell its 56% stake in the Mohave Generating Station, a giant coal-fired power plant that environmentalists contend is a prime contributor to the haze that hovers over the Grand Canyon.

It was not clear whether that plant would be covered by the legislation, but the state Public Utilities Commission voted to halt the Edison sale, pending a further order. Chairwoman Loretta Lynch said such sales are not in the best interests of consumers.

“This commission cannot and will not put one more kilowatt of power generation into the hands of independent generators to the detriment of California customers,” Lynch said.

The stock of both PG&E Corp. and Edison International plunged and then recovered. PG&E shares rallied in late trading to close up 13 cents to $ 9.75 after falling to a two-decade low of $ 8.38 on the New York Stock Exchange. Edison rose 13 cents to $ 9 after falling as low as $ 8 on the NYSE.

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