The San Diego Union-Tribune

SACRAMENTO — Lawmakers plan to take their first step toward solving California’s electricity crisis today by asking the Assembly to quickly approve the state’s purchase of electricity.

The urgent move is aimed at reassuring the creditors of Southern California Edison, which lacks the cash needed to pay a bill, due today, for the purchase of power.

“That will send a signal to the generators that this is really going to happen, that it’s not just a negotiating deal,” said Steve Maviglio, Gov. Gray Davis‘ press secretary.

The governor last week said he believes that the state, with its strong credit rating, can purchase power at low rates for California utilities that have been brought to the brink of bankruptcy by a failed deregulation plan.

The governor’s deal-making confidence notwithstanding, a federal official said the context for negotiations would change dramatically after President-elect Bush takes office on Saturday.

Curt Hebert Jr., a member of the Federal Energy Regulatory Commission, expressed disappointment at what he characterized as the partisan nature of settlement talks between California and the power industry that have been taking place in Washington, D.C., under the auspices of the Clinton administration.

“No Republicans are taking part in the negotiations, and I have certainly been excluded,” said Hebert, who reportedly is a candidate to become chairman of the commission under the incoming presidential administration.

“Obviously, I am disappointed. They should have showed some bipartisanship over the past two weeks,” he said.

“I think you will see the Bush administration come and make changes to energy policy that will influence in a positive way what happens in California and elsewhere.”

Legislative leaders plan to urge a strong bipartisan Assembly vote today for the authorization of state power purchases, and would ask the Senate to send the bill to the governor tomorrow.

The legislation being drafted yesterday is a broad authorization for the state purchase of power.

The Senate is expected to refine the bill, and it may require follow-up legislation to provide some details.

“What you see coming out of the Assembly will not be the bill that goes to the governor’s desk,” Assemblyman Fred Keeley, D-Boulder Creek, said yesterday during a break in a marathon drafting session.

The state Department of Water Resources, which operates hydroelectric facilities, made emergency purchases of power for the utilities last week when California faced the threat of blackouts.

But the method by which the state would begin making large purchases of power is still being worked out. Davis said last week that the state would be repaid from monthly utility bills without risk to taxpayers.

Line in sand

The governor wants a solution that does not include another rate increase for Edison and Pacific Gas & Electric customers. State regulators recently allowed the two utilities a rate increase averaging about 10 percent for homes and businesses.

“The governor has sort of drawn a line in the sand with no rate increase,” said Maviglio.

Davis believes the state can purchase power for the utilities through long-term contracts for 5 to 5.5 cents per kilowatt hour, far below the 30 to 40 cents currently being paid by the utilities.

The governor said that if the utilities continue to charge ratepayers about 7.2 cents per kilowatt hour, the lower cost under the state contracts would create revenue that could begin paying off the utilities’ massive debt.

Edison and PG&E, whose rates are frozen under deregulation, have not been able to bill their customers for the soaring wholesale cost of electricity, producing what they say is a combined debt of nearly $12 billion.

Maviglio said the governor received two “unsolicited bids” last week from generators that would be willing to sell power to the state under long-term contracts for a price in the range of 5 to 5.5 cents per kilowatt hour.

But some power suppliers reportedly want more than what Davis has quoted. It’s unclear how much power might be available at prices the governor has demanded, and the situation is clouded by the complexity of bid documents, which require scrutiny to determine true costs.

San Diego Gas & Electric, the first utility to be deregulated, doubled and tripled ratepayer bills last summer. Legislation capped SDG&E rates, but mounting debt will force SDG&E to seek a rate increase soon.

Consumer groups angry

As lawmakers worked on the legislation to aid Edison, there was a report that federal regulators approved a corporate restructuring last week that protects the assets of Pacific Gas & Electric’s parent firm. The action drew strong criticism from consumer groups.

The consumer groups say the state’s major utilities have exaggerated the debt they’ve incurred from buying energy by failing to offset those costs with profits the same companies have made from power sales of their own.

PG&E, for example, profitably sells power through other corporate subsidiaries.

The California Public Utilities Commission has been conducting an audit to determine the net effect of recent events on the state’s major utilities.

But FERC’s decision last week to approve PG&E‘s proposal to tighten its lock on profits while appealing for state aid to deal with losses could backfire.

“It’s just like spitting in the eye of the Legislature,” said Nettie Hoge, executive director of The Utility Reform Network in San Francisco. “Their public statement is that we don’t have sufficient assets to cover our losses — and you don’t have a legal right to go after our profits.”

Doug Heller of the Foundation for Taxpayer and Consumer Rights likened PG&E‘s action to “filling suitcases” with cash while appealing for a state bailout.

Gov. Davis directed his criticism at federal regulators who quietly approved the restructuring.

No notice

“Once again I am disappointed that the Federal Energy Regulatory Commission acted in the middle of the night without notice to all parties,” Davis said in a statement. “We will study the consequences of this action.”

Through all this, California power supply problems continued yesterday in a confounding direction: No matter how low the state’s demand for power seems to fall, the supply seems to fall correspondingly, keeping consumers in what is said to be a precarious situation.

Although yesterday was a holiday, with relatively light statewide power consumption, the California Independent System Operator said conditions forced it to issue yet another Stage 2 alert. The alert signaled that the state had just 5 percent more generating capacity than it was using.

“A unit comes back on and another goes down,” said Patrick Dorinson, a spokesman for the ISO.

Some 11,000 megawatts of generating capacity were unavailable yesterday because of planned or forced maintenance, and because of a lack of water for hydropower, Dorinson said. The total was equivalent to the output from 20 modern power plants.

The ISO spokesman added that the state’s difficulties are partially the result of transmission constraints, with lines unavailable to move electricity to where it is needed.

A growing number of industry observers here and elsewhere say deregulation has been accompanied by an increase in the number of plant shutdowns. They say the shutdowns serve to create shortages and drive up prices.

Generating companies have denied the allegation that they are withholding power and say California’s aging power plants have been driven harder than ever as demand grows, and have been subject to more maintenance and breakdowns.

STAGE 2

The California Independent System Operator, manager of the state’s power grid, declared a Stage 2 alert yesterday after reserves dropped to less than 5 percent of available energy.