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Seeking Harmony to Quiet California Energy Turmoil

The New York Times

While Californians readied themselves for yet another day of possible power blackouts, negotiators in Washington continued today to try to hammer out a solution to the state’s energy problems.

Two days ago, President Clinton brought together federal and state leaders, utility executives and power generation representatives to discuss the crisis in California that has driven the state’s two largest utilities to the brink of bankruptcy and threatens the state’s economy. That group, which included Treasury Secretary Lawrence H. Summers, agreed that several issues needed to be addressed to solve California’s problems.

Topics discussed today and in the seven-hour meeting on Tuesday included promoting long-term purchasing contracts between the utilities that use electricity and the power generators that sell it, and the willingness of creditors to give temporary relief while the utilities and state regulators sort out how to pay the $12 billion in electricity costs that the utilities have incurred since May. This weekend, the group is expected to reconvene to devise a course of action.

Energy Secretary Bill Richardson told reporters in Washington today that a plan may not be ready by Saturday as planned, but that one of the options would be to give utilities 60 to 90 days to repay past debts.

Also on the agenda this weekend will be whether to allow the companies who make and sell electricity to enter into contracts to charge utilities 5.5 cents a kilowatt-hour for electricity. Utilities are currently allowed to charge consumers about 7 cents a kilowatt-hour, although they have been paying power producers an average of 35 cents.

In Washington today, people who attended the meetings said that representatives of producers would like to lock in that price for nine years, while state officials would prefer to limit that price to three years.

John Burton, president of the California State Senate, who attended Tuesday’s meeting, said he supported the price being discussed. He said he wanted the state to buy electricity and then resell it to utilities, but did not want to be a guarantor of the utilities’ debt. At a price of 5.5 cents, he said, “this would guarantee long-term stability and affordability.”

Consumer groups have complained that any price negotiated now could look too high in the future if prices for electricity fall, a surety, they contend, as much as they have gone up.

“It all depends on the terms,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

Those on hand at today’s meeting also included officials from the California Independent System Operator, which manages the state’s power grid, as well as Treasury officials.

California utility executives from Pacific Gas and Electric and Southern California Edison have warned that bankruptcy is imminent, possibly by Feb. 1, if something is not done to relieve the cash shortage that has led them to suspend dividends and lay off employees. Financial ratings agencies, which monitor the utilities’ health, are a step away from giving their debt a junk-bond rating, which would cripple their efforts to get more financing.

One of the most surprising aspects of the situation is that it took the intervention of the Treasury Secretary to broker a meeting about a crisis that many in California had predicted, but no one wanted to take responsibility for.

One person involved in the talks said that in November, executives from the Federal Reserve in San Francisco warned Treasury officials that trouble was brewing at the state’s largest utilities, a situation that could have a negative impact on financial markets. Worse, said the individual, officials were told that relations between state officials and regulators at the Federal Energy Regulatory Commission, which oversees the power generators, had grown so testy that the two sides were unable to work together.

Loretta Lynch, president of California’s Public Utilities Commission, has repeatedly blamed the federal commission for doing nothing to admonish the power generators for high prices. James Hoecker, chairman of the federal commission, has told state officials repeatedly that they had to get their own house in order. At Tuesday’s meeting, the two sat side by side but barely said a word to each other, one person who attended said.

Still, utility executives were heartened that all the parties are talking. “We’ve finally reached a point in the road where we have to come to some agreement,” said Tom Higgins, a senior vice president for Edison International, the parent company of Southern California Edison.

At the same time that harmony was being attempted in Washington, Los Angeles officials said they wanted reassurances that Los Angeles would be repaid for any electricity it had already sold to the state.

“We are not a charitable organization,” said S. David Freeman, general manager of the Los Angeles Department of Power and Water. “We are not pulling the plug on anyone. We just want to be reassured that the money we are putting out is going to get reimbursed.”  

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