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Plan Urges State Take Utilities' Hydro Plants Energy: Assembly proposal would give California the facilities in exchange for concessions to the beleaguered firms. Even some critics say radical idea may provide a framework for dealing with the crisis.

By DAN MORAIN, MIGUEL BUSTILLO, Times Staff Writers

SACRAMENTO--California would become one of the largest owners of hydroelectric power in the nation and use profit from those plants to borrow as much as $12 billion to buy electricity, under a plan to be unveiled today by Assembly Democrats. The Assembly proposal puts the state in the power business in two ways: by owning Pacific Gas & Electric and Southern California Edison's massive hydroelectric plant network, and by entering into long-term contracts with power generators to stabilize costs before the energy crisis morphs into a full-blown economic disaster. The state's two troubled utilities would hand over their hydroelectric plants, worth billions, in exchange for permission to dedicate a portion of their current rates to pay off part of more than $11 billion in debts they've racked up in recent months. They would also benefit from the state's ability to use its good credit to buy power and pass it on at cost. The plan, crafted by Assembly Speaker Bob Hertzberg (D-Sherman Oaks) and Assemblyman Fred Keeley (D-Boulder Creek), represents the most complex scenario to date and would give the state control of key environmental resources, including hundreds of mountain dams and reservoirs. While the plan's economic and political viability will be tested in days to come and critical details remain unresolved, even some critics thought it provided the strongest framework to date for resolving the energy crisis. Gov. Gray Davis, whose Wednesday auction to secure long-term contracts might be part of this plan, reserved comment. The harshest criticism came from those denouncing it as a utility bailout. But while the two utilities have defaulted on millions and face the possibility of forced or voluntary bankruptcy any day, Edison Chairman John Bryson was skeptical about whether the Assembly proposal would restore his company's financial stability. "The hydro is an enormously valuable resource we have, and we certainly have not agreed to give it up," Bryson said Sunday, adding that "a lot of take-aways" appear to be "lurking" in the proposal. "The reality is we owe this money," Bryson continued. "If the question is, 'How do the utilities become credit worthy so they can do their jobs,' I can't see how this would get the job done. If we're not credit worthy, it's hard to figure out how you keep the lights on or operate the systems, unless the state takes over the entire system." Senate President Pro Tem John Burton (D-San Francisco) on Sunday didn't rule out state control of the hydro plants, but suggested that state control of transmission lines might make more sense. And he blasted the concept of allowing utilities to pay off their debt with money from ratepayers' bills. "That is a flat bail-out for the utilities," Burton said. The plan promises that rates will not rise beyond the hikes approved earlier this month by the California Public Utilities Commission as an emergency surcharge. The state would sell bonds worth as much as $12 billion and use that money to buy power through long-term contracts it hopes to negotiate with power generators. It would sell that power to the utilities, who would then bill customers. The state's long-term debt would be paid off with an estimated $1 billion California would make annually from selling hydropower--one of the cheapest forms of electricity to produce--to the utilities at a profit. Key to that effort is an auction that the state is holding this week seeking bids from power generators for electricity. PG&E owns the bulk of the state's hydroelectric plants--capable of generating almost 3,900 megawatts. Edison controls about 1,155 megawatts of hydroelectric power. Together, they represent about 10% of the state's energy needs. PG&E spokesman John Nelson declined to comment on the proposal. Keeley, the Assembly's point man on the package, said lawmakers worked until 4 a.m. Sunday and acknowledged that allowing the utilities to repay their debt over time, with money taken from consumers' monthly bills, would generate opposition. But he and others expressed fear the alternatives are worse, and that utility bankruptcies, leaving the fate of rates to a judge, could devastate California's economy, one of the largest in the world. "We are terribly concerned that this could careen out of control," Keeley said. "We want to do whatever possible to help this patient get well and stabilize this situation." Sen. Debra Bowen (D-Marina del Rey), a staunch environmentalist who heads the Senate Energy and Utilities Committee, said even she was reluctant to support a measure that would let utilities pass the debts to ratepayers--even if it came with acquiring the hydro system. "There is a real question about whether that trade off is worth it," Bowen said. "But everything we are doing is weighing some terrible set of consequences. I feel like I am being asked to choose between strangling my mother and ax murdering my father." The governor was noncommittal. "We're reviewing and vetting it," Davis spokesman Steve Maviglio said. Keeley has been pushing for several years for California to acquire PG&E's hydroelectric power network, worth an estimated $3 billion to $5 billion. Left unanswered by the proposal is whether California would gain control of the hydro plants permanently and establish an authority to operate them, or take possession of the facilities as security for several years, until the utilities regain financial stability. The state would likely contract with the utilities so the companies would continue to operate them. S. David Freeman, director of the Los Angeles Department of Water and Power and an expert on public power, called the proposal "a piece of the escape route." But he said the question remains whether the state can cut costs by inking long-term contracts for electricity. "That's a fairly key ingredient," he said. Tom Williams, a spokesman for Duke Energy, which owns several California power plants, called the proposal a "very plausible, good step." But like Freeman, he said much of the deal hinges on the state's ability to secure long-term contracts at affordable rates for wholesale power. "This adds one piece, but you've still got this major piece of the equation too"--the contracts, Williams said. Consumer advocate Harvey Rosenfield, who is contemplating an initiative on the topic, said any attempt by lawmakers to have consumers foot the bill for the utilities' debt though a special charge would be challenged on the ballot. "It's a deal-breaker for us," Rosenfield said. "I can tell you right now, we will go straight to the ballot. The residential and small-business ratepayers have paid enough." Rosenfield said that while public ownership of hydroelectric power is a laudable goal, it might "build in a $6 billion to $12 billion bailout of the utility companies." The hydroelectric power networks owned by PG&E and Edison are considered crown jewels--and not just because of the inexpensive electricity they produce. Stretching from the Oregon border to San Diego, The vast systems of flumes, dams, reservoirs and turbines harness the flow of many of California's largest rivers. That has wide-reaching consequences not only on the availability of power, but of the crucial water piped from the Sierra to farms in the Central Valley and the city waterworks of Southern California. With the turn of a lever, whoever controls the hydro networks can influence everything from commercial fishing and recreational boating to the restoration of threatened fish such as California's coho salmon and steelhead trout. The slightest fluctuation can affect water temperatures hundreds of miles away. When PG&E sought to sell its network off to the highest bidder in five huge pieces last year, its value was estimated at anywhere from $3 billion to $5 billion. With support from environmentalists, water agencies and consumer groups, Keeley sought to stop the sell-off last year with legislation that would have made California the owner and steward of what he deemed a critical public asset. The bill fizzled because of lack of support. Ironically, in the January bills, PG&E sent customers a notice saying there would be public hearings on the sale of its hydro plants in coming weeks. Since then, the Legislature approved and Davis signed legislation barring utilities from selling off their remaining assets. PG&E took no position on that bill. "This is a very inexpensive supply of power," Keeley said. "They can have positive economic benefits, and we could be good stewards of the environmental resources involved." In other developments on the energy crisis Sunday: * State officials exempted two pipeline companies from forced blackouts to cut off a projected shortage of gasoline. The PUC late Friday granted the exemption to Kinder Morgan Energy Partners and GATX Terminals, which had four days of pipeline shutdowns last week because they are companies that volunteered to have their power cut in times of scarcity. "We're making up a lot of lost ground," said Larry Pierce, a spokesman for Houston-based Kinder Morgan. "There are not going to be shortages." * A power station breakdown in the Pacific Northwest resulted in 20-minute black-outs in the afternoon affecting between 50,000 and 70,000 customers in Central California. It was the first time in the California Independent System Operator's three-year history that power was cut on a Sunday, a day when there is far lower electricity demand than other days. About 15% more power is expected to be needed today. Times staff writers Elise Gee, Nicholas Riccardi and Erin Texeira contributed to this report.

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Hydro Powerhouses Pacific Gas & Electric Co.'s hydroelectric system is built along 16 river basins that span nearly 500 miles from Eureka to Bakersfield. It can generate up to 3,896 megawatts, enough power to meet the needs of nearly 4 million homes. The company has accounts with more than 13 million homes. Its facilities include: * 175 dams * 68 powerhouses * 100 reservoirs * 135 miles of tunnels * 184 miles of canals Southern California Edison provides electricity to more than 4.2 million customers over a 50,000-square-mile service area in coastal, Central, and Southern California. About 90% of its hydroelectric power comes from Big Creek hydroelectric system, a series of four lakes connected by seven rivers and a series of tunnels located 250 miles north of Los Angeles in the Sierra Nevada. The plant generates up to about 1,000 megawatts from nine powerhouses. It includes: * 23 generating units * Six major reservoirs * 3.9 billion kilowatt hours a year * 26 dams Source: web sites of PG&E and SCE

http://www.latimes.com/news/front/20010122/t000006226.html

-- Martin Thompson (mthom1927@aol.com), January 22, 2001

Answers

If i were the utilities, and they didn't buy all of my california properties, I would just leave it all standing where it is, fire the employees, and leave the state. Only in The Peoples Republic of California, does the state have the right to make a profit, but not the same industries that are publicly traded.

-- Lee Blocher (cblocher@northernway.net), January 22, 2001.