State’s tally nears $2 billion for short-term power buys

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The Associated Press

The state Wednesday prepared to spend $500 million more on emergency power-buying, raising the tally to nearly $2 billion as California struggled through another day of near-blackouts. A federal ruling raised the prospect of even more state spending.

The additional taxpayer money is needed to keep the lights on because negotiations for less costly long-term electricity contracts are taking longer than anticipated, state Department of Finance spokesman Sandy Harrison said.

“It’s basically new, unanticipated money,” Harrison said. “We’re doing short-term solutions while we’re trying to nail down the long-term solution.”

As part of the contract talks, some electricity wholesalers want a guarantee the state will back emergency power purchases by the operator of the state power grid if struggling Pacific Gas and Electric Co. and Southern California Edison cannot pay for them, said Steve Maviglio, spokesman for Gov. Gray Davis.

Wholesalers have made similar demands in lawsuits against the state. Three are under court order to keep selling to the Independent System Operator, keeper of the grid, while a judge considers their arguments.

Davis has refused to make the state financially responsible for the ISO’s last-minute energy buys, arguing wholesalers are trying to lock the state into unreasonably expensive short-term power purchases.

A federal ruling issued late Wednesday may force the issue.

The Federal Energy Regulatory Commission denied a request by the ISO to waive a requirement that struggling PG&E and Edison – major recipients of the ISO’s purchases – have the ability to pay their bills.

“The ISO has been buying power without necessarily having creditworthy customers behind it,” said Tom Williams, spokesman for Duke Energy. “FERC is saying there should be a creditworthy entity buying power.”

That means the state – already spending $45 million a day to buy power for PG&E and Edison customers – may also have to pay for the emergency power buys the ISO makes to avoid rolling blackouts.

That was the intent of legislation signed by the governor last month letting the Davis administration spend an estimated $10 billion on long-term power contracts, according to Assemblyman Fred Keeley, the Assembly’s point-man on energy.

The lack of state backing violates the legislation, which was intended to give wholesalers a creditworthy buyer for their electricity, said Keeley, D-Boulder Creek.

The state’s power buys currently supply about a third of Edison‘s and PG&E‘s needs. The ISO will not reveal how much power it buys every day, but its last-minute purchases likely equal a fraction of that.

The two utilities get about a third of their power from their own plants and another third from contracts with “qualifying facilities,” such as solar- wind- and steam-powered electricity producers.

PG&E spokesman Ron Low said the FERC ruling “recognizes that California’s utilities do not have the financial capacity to continue to purchase power for their customers.”

Davis spokesman Maviglio referred calls to the ISO Wednesday evening. Officials there did not immediately respond to phone messages by The Associated Press seeking comment.

With several plants down for repairs, the ISO feared a repeat Wednesday of the rolling blackouts that hit the state twice last month, but said the influx of 1,200 megawatts from other states – enough power for about 1.2 million homes – and milder weather helped fend them off.

Maviglio said it’s too soon to say whether the state’s latest $500 million infusion for short-term power will be the last.

“It’s too difficult to predict because the price of power varies dramatically,” Maviglio said. “We’re continuing to make progress on a day-to-day basis.”

Davis and his negotiators refuse to release details on the contracts, saying suppliers might take competitive advantage of the information.

Under the law signed last month by Davis, the state can enter into power-buying agreements lasting from several months to a decade. The state will issue revenue bonds to finance the purchases; the utilities’ customers will pay off the bonds over a decade.

Consumer advocate Harvey Rosenfield argued that the additional short-term buying is counterproductive to the state’s long-term goal of lower power prices.

“We’re not going to get a decent price until these companies suck every penny out of our treasury,” said Rosenfield of The Foundation for Taxpayer and Consumer Rights.

State lawmakers have 10 days to veto the new spending.

Finance Department Deputy Director Robert Miyashiro told the Assembly Budget Committee that Davis is tapping “several pots of money” to deal with the energy crisis but plans to restore the funding.

Assembly Republicans asked the department to give them a report on how much money Davis is taking from various state agencies to help deal with the problem.

Meanwhile, Davis hopes to reach agreement with legislators by Friday on a plan to help Edison and PG&E pay off the debts they have accumulated due to soaring electricity costs.

The two utilities, both denied credit by power suppliers, say they’ve lost nearly $13 billion since June to high wholesale electricity prices the state’s 1996 deregulation law blocks them from recovering from their customers.

Davis and lawmakers are considering making state acquisition of utility transmission lines, hydroelectric plants, scenic land or stock options as part of the deal.

Davis said Wednesday that he favors a state takeover of the utilities’ transmission systems. That would let the state fix at least five transmission bottlenecks adding to the power problem, he said.

State Treasurer Phil Angelides told a Senate energy committee Tuesday the state could use tax-exempt bonds to fix the problems more cheaply than private utilities.

Davis did not put a dollar figure on that plan, which he said would probably be financed by additional state revenue bonds. The bonds would likely be repaid with the portion consumers already pay toward transmission on their monthly power bills, with no rate increase, Maviglio said.

Assembly Republicans have said they will not vote for the transmission proposal, estimating it would cost the state upwards of $1 billion a year to upgrade the system. Only a simple majority is needed to approve the plan, however, and if enough Democrats support it no votes from the GOP minority would be needed.

Davis is also proposing incentives to increase power production. On Wednesday, he asked lawmakers to devote more than $100 million to rebates and tax credits to encourage greater output of renewable energy, which includes solar-, wind- and steam-driven power.

California is in its fifth straight week under a Stage 3 power alert, with electricity reserves threatening to fall to just 1.5 percent.

Consumer Watchdog
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