Contra Costa Times

 SACRAMENTO, Calif.–Power use across the state dropped on Friday as schools, businesses and government offices shut down for the Christmas weekend, and energy officials predicted smoother sledding for the state’s beleaguered power grid in coming days.

On Wall Street, stocks rebounded for the Pacific Gas & Electric Co. and Southern California Edison after Thursday’s decision by the California Public Utilities Commission to pursue rate increases for the two companies.

However, one consumer group said Friday that it is “inevitable” the group will pursue a ballot initiative to re-regulate the electric utility industry. The Foundation for Taxpayer and Consumer Rights, a Santa Monica-based organization led by Harvey Rosenfield, said it must go to the ballot box because top-level government discussions about the state’s energy crisis have centered on rate increases.

Investment firms and rating agencies, such as Standard’s & Poor, welcomed action this week by the PUC, but one analyst said he and others are still waiting to see the bottom line. The commission did not say how much more the companies could charge for electricity and scheduled a hearing for Wednesday to explore the question.

PG&E and Southern California Edison are seeking to increase their electricity rates to help pay for $ 8 billion in debt the companies say they have amassed since last summer. In a filing with the commission, PG&E said it wanted to hike rates by 17 percent, which would push up the average monthly Bay Area bill from $ 54.52 to $ 63.79.

Peter Otersen, an associate director of S&P, said the firm is taking a wait-and-see approach and expects to make a decision early next week on whether to downgrade the utility companies’ credit ratings. S&P is one of Wall Street’s three major credit-rating agencies.

“I think they have outlined all of the things that need to be done on their part,” Otersen said of the PUC. “We find that encouraging. We would defer from any judgment until we hear what they have to say and see what happens at the meetings.”

The two utility companies say they could face bankruptcy as early as next month if they cannot find a way to increase cash flow and bolster the confidence of banks to lend them money. The companies have been caught in a crunch between skyrocketing wholesales prices for electricity and a rate freeze they are forced to keep until they meet the terms of deregulation.

On Wednesday, S&P analysts said the utility companies need rate increases on the order of 20 percent. That is one of many forms of assistance required to keep the companies’ credit ratings from dropping to junk bond status, they said.

Meanwhile, Gov. Gray Davis monitored the situation from his Los Angeles home before flying to New York today to spend the Christmas weekend. Davis has scheduled a Tuesday meeting with Federal Reserve chairman, Alan Greenspan, in Washington, D.C., spokeswoman Hilary McLean said.

Davis will be asking for advice on how to maintain “ongoing stability of the market and, ultimately, make sure that the lights stay on in California,” McLean said.

In the state Capitol, legislative offices closed down for the year. They will reopen when the Legislature returns on Jan. 3.

Lawmakers are bracing for a blizzard of activity next month on energy issues. Davis has said he will call a special session to push through several bills, including one to better coordinate when power plants can shut down for maintenance.

Privately, some lawmakers said they are worried about the pending electricity rate hikes. Should the PUC ease the way for the major utility companies, then California will have less political muscle to force an overhaul of the wholesale electricity market, some said.

On a positive note, Friday was the first business day in three weeks energy officials did not declare a supply emergency. State electricity usage was expected to peak at near 32,000 megawatts on Friday evening and drop to no more than 26,000 by Monday.

In 2000, state energy officials have declared supply emergencies on 53 days, and on 35 of those days, reserves dipped below 5 percent.

“The holiday is bringing some much anticipated relief to the demand on the power grid,” said Stephanie McCorkle, a spokeswoman for the California Independent System Operator, the agency that manages the delivery of power to 75 percent of the state. “However, the supply picture continues to be tight.”

The system operator has two major concerns, she said. One, December has produced little precipitation, meaning hydro-power plants cannot operate at full capacity without dropping water in lakes, rivers and streams well below their normal levels for this time of year.

Two, the state has relied upon aging power plants, which have operated at full throttle in recent weeks, and they could break down or require maintenance at a moment’s notice, McCorkle said.

“Our comfort level has improved a little but there is still going to be around-the-clock tension here as we manage this very tight supply picture,” McCorkle said.