The San Francisco Chronicle
With the prospect that state power buyers could burn through more than $2 billion a month this summer, some state Democratic leaders are pushing for a takeover of private power plants to get soaring prices under control.
Lawmakers concede that sending state agents to grab the keys of power generating plants would be an extraordinary measure.
But now that Pacific Gas and Electric Co. has limited the state’s options with Friday’s bankruptcy filing and with little hope for stronger federal price controls, state Senate leader John Burton and others say seizing power plants makes financial and political sense.
They say they’ve done the math: Since January, California has spent more than $4 billion buying power. That’s about $1 billion more than private energy firms paid for the power plants PG&E and California’s two other investor-owned utilities were forced to sell under California’s botched deregulation plan. At those rates, California could soon look like a renter paying the full value of the house several times a year.
Profits of 300 percent are not uncommon for large private generators, which provide about 40 percent of the state’s power needs. The state could seize the assets, compensate the companies and then sell the electricity to consumers at cost, advocates of the plan say.
“We have to do something,” said Burton, D-San Francisco, one of a group of legislators who urged Davis at a meeting last week to condemn some of the plants. “These people have got us by the throat. They’re making more money than God, and we’ve got to fight back — not with words, but with actions.”
Davis himself raised the specter of using his emergency powers to take over power plants with a fiery flourish during his State of the State address earlier this year.
“If I have to use the power of eminent domain to prevent generators from driving consumers into the dark and utilities into bankruptcy, then that’s what I will do,” he said in January.
Davis still hasn’t ruled out the possibility, but he says it’s not high on his list of tactics.
Generators say they would fight tooth and nail against such a grab, and state GOP lawmakers oppose condemnation, saying it smacks of underdeveloped countries’ nationalizing key industries.
But Burton and other Democrats, including state Senators Don Perata, D-Oakland, and Jackie Speier, D-Hillsborough, say the governor’s strategy so far has left giant energy firms holding all the cards — and a mounting pile of the state’s cash.
Davis had been trying to restore the financial stability of PG&E and Southern California Edison after their combined $14 billion debt for electricity purchases so damaged their creditworthiness that the state had to take over buying power.
But now that PG&E has sought bankruptcy protection rather than accept Davis’ plan to buy its transmission lines, the state may be stuck with the role of power buyer for years.
POWERS OF EMINENT DOMAIN
Sacramento lawyer Richard Desmond, an expert on state powers of eminent domain, said California could seize generating plants by demonstrating that it would put the properties to “a higher and more necessary use.”
“The government has almost unlimited power of eminent domain to acquire property,” Desmond said. “The only thing the state has to do is pay ‘just compensation,’ as defined under the constitution.”
The state could file a formal suit for eminent domain, a time-consuming procedure if the owner mounts a fierce resistance over the transfer price, Desmond said. If the state wants to take immediate possession, it can deposit an estimate of the just compensation and fight it out later in court. But if the state loses, it could be stuck for interest, litigation costs and damages.
Condemnation of power plants would raise a number of unknowns, such as figuring out who would manage and operate the facilities. The state might also be put into the position of having to seize contracts between the generators and natural gas providers.
Davis spokesman Roger Salazar said the governor’s first priority was building new plants to increase supply, rather than condemning existing plants.
State Sen. Jim Battin, R-Palm Desert, said he thought seizing plants was a horrible idea.
“We would become a third world country and start nationalizing things,” Battin said. “Nobody would ever build a power plant in California again. I think that would be a really bad play.”
COMPANY WOULD FIGHT
Tom Williams, a spokesman for Duke Energy, said the company would fight vigorously to protect its multimillion-dollar investment in four California plants, including Morro Bay and Moss Landing.
“We would defend our interest and seek a fair market value,” Williams said. Duke spent $611 million to buy or lease the four plants since 1998, and has embarked on a $1.6 billion program to upgrade and expand them.
Some power companies, however, may find their claims for the fair market value of their plants undercut by their own tax filings. Energy firms, including Duke, told county assessors last year that the utility plants they bought were worth hundreds of millions of dollars less than they paid for them.
Private companies including Duke, Dynegy, Southern Energy, AES Corp and Calpine spent a total of $3.2 billion to buy divested utility power plants that can produce as much as 20,000 megawatts.
UNDERLYING PROBLEM UNSOLVED
Williams said taking over the property of private companies would not solve the underlying problem behind California’s high energy prices: rising demand and an inadequate supply of energy to fill it.
Even if Davis seized only one plant, the move might spur other power generators to drop their prices, said Doug Heller of the Foundation for Taxpayer and Consumer Rights.
“As soon as the generators recognize we’re ready to go to a public power system and take their plants, they may start selling power at reasonable rates, and we won’t have to go down that road,” Heller said.