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 purchases, raising the tally to nearly $2 billion as California struggled through another day of near-blackouts.

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.”

The Federal Energy Regulatory Commission on Wednesday denied a request by the California Independent System Operator to waive a requirement that nearly bankrupt Pacific Gas & Electric and Southern California Edison be creditworthy.

“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.”

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.” Steve Maviglio, a spokesman for Gov. Gray Davis, referred calls to the ISO Wednesday evening, but officials there did not immediately return calls by The Associated Press for comment.

As part of the contract negotiations, some electricity wholesalers want a guarantee the state will pay any price approved by the Independent System Operator, which oversees the state’s power grid, Maviglio said. Wholesalers have made similar demands in lawsuits against the state.

Davis rejected such a guarantee Wednesday, saying the state will refuse to pay unreasonable prices. However, Assemblyman Fred Keeley, D-Boulder Creek, the Assembly’s point-man on the energy issue, said the lack of state backing violates the intent of legislation that was intended to give wholesalers a credit-worthy buyer for their electricity.

State power regulators feared a repeat Wednesday of the rolling blackouts that hit the state twice last month, but anticipated the influx of 1,200 megawatts from other states – enough power for about 1.2 million homes – would fend them off.

The state has been spending about $45 million a day since early January to buy electricity for Edison and PG&E, both denied credit by power suppliers.

The two 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 his negotiators refuse to release details on the contracts, saying suppliers might take competitive advantage of the information. Under legislation signed last month by Davis, the state can enter into power-buying agreements lasting from several months to a decade.

Their goal is to lock in lower-cost electricity using $10 billion raised from revenue bonds to be issued late this spring or early summer. Those bonds are also expected to pay the state back for its short-term power buys. A portion of PG&E and Edison customers’ rates will be used to pay off the revenue bonds.

The governor’s spokesman said it’s too soon to say whether the new $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.”

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

“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. “Why should they agree to a lower price when the state’s now paying them their extortionary prices?”

State lawmakers have 10 days to consider vetoing 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 Finance Department to give them a report on how much money Davis is taking from various state departments to help deal with the problem.

“There’s a large portion of our caucus which thinks there ought to be some accountability on a daily basis,” said GOP spokesman Jamie Fisfis.

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

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

Davis on Wednesday said 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.

“All these bottlenecks prevent us from efficiently moving electrons from one part of the state to the other, and it doesn’t do us any good just to build power plants,” Davis said. “We’ve got to the get the maximum efficiency we can out of our existing transmission lines.”

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

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.

Davis also proposed spending $20 million to retrofit diesel- and natural gas generators run by municipal water districts to cut pollution.

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

The power scrounged Wednesday by the Independent System Operator helped the state compensate for the loss of nearly 11,000 megawatts due to plant repairs, said Jim Detmers, the ISO’s operations director.

Warmer weather also knocked about 1,000 megawatts off the statewide demand, said ISO spokesman Patrick Dorinson.


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