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Tuesday January 30 2:47 PM ET Bad News Mounts in Calif. Energy Crisis

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By Andrew Quinn

SAN FRANCISCO (Reuters) - California's escalating energy crisis delivered a double dollop of bad news on Tuesday as officials exhausted an emergency fund to purchase power and the state's biggest utility said it was ready to default on hundreds of millions of dollars in debt.

Meanwhile, managers of the state's beleaguered power grid said supplies remained extremely tight -- forcing them to declare the 15th consecutive day of emergency energy alert and to warn that blackouts were possible.

``It appears to be a tighter day today,'' said Patrick Dorinson, a spokesman for the Independent Systems Operator which runs the California power network.

In both Sacramento and Washington D.C., officials scrambled for a long-term solution to the problems bedeviling the nation's most populous state as California's neighbors began to feel the heat from its power meltdown.

California state legislators were expected to vote, perhaps as early as Tuesday, on a bill mandating electricity rate increases for consumers -- part of a bid to repair some of the damage caused by the state's failed 1996 experiment with market deregulation.

And both state officials and consumer advocates were poring over the results of one of two official audits of the cash-strapped major utilities and their parent companies.

That audit, of Edison International unit Southern California Edison, revealed a company hemorrhaging red ink and deep in debt-- but one which, until recently, still managed to disburse billions of dollars in dividends to shareholders.

Damage Continues To Mount

California's problem is rooted in its 1996 experiment with market deregulation, which freed wholesale energy prices but kept strict caps on the prices utilities could charge consumers. While a lucrative arrangement for the utilities for the first several years, growing supply shortages this year sent wholesale prices skyrocketing -- and forced the utilities billions of dollars into debt.

Both companies warned earlier that they were out of credit and on the brink of bankruptcy, forcing Gov. Gray Davis to set up a $400 million emergency fund to allow the state to purchase power the utility companies can no longer afford.

On Monday, however, officials announced that in less than two weeks that fund had been entirely exhausted, forcing the state to begin scrounging for more public money to keep the electricity flowing.

``We're now acting under the emergency authority of the governor'' to secure more money, said Mike Sicilia, a spokesman for the Department of Water Resources, which Davis has named as the state's agent for power purchases. Sicilia declined to say how much money was being tapped.

Utility Finances Under Scrutiny

The crisis atmosphere was heightened when the state's largest utility, PG&E Corp. unit Pacific Gas & Electric Co., said it would probably be unable to pay $437 million of short-term debt due Wednesday, adding to some $76 million in similar debt it has already defaulted on.

``Right now we have a cash shortage and we won't be able to make these payments tomorrow,'' said Shawn Cooper, a spokesman for PG&E, adding that attempts to renegotiate the payment schedule were underway.

Pacific Gas and Electric also is expected to default on hundreds of millions of dollars owed to power suppliers unless some kind of bailout package can be hammered out, and utility officials have warned that the company is perilously close to running out of natural gas supplies -- which could mean no heat, hot water, or cooking gas for hundreds of thousands of California homes.

The utilities' finances were expected to become clearer Tuesday as officials examine the results of audits into both utility companies and their parent corporations. The California Public Utilities Commission released the audit into Southern California Edison late Monday, and was expected to release a similar audit into Pacific Gas & Electric Tuesday.

The five-year audit of Southern California Edison by KPMG LLP found that neither the utility nor its parent company had the wherewithal to resolve the current predicament, a conclusion expected to support efforts by Davis and state lawmakers to craft some sort of rescue package.

But the accounting firm also found that Edison International had drained close to $5 billion from the utility unit over the same period, and used most of the money in payouts to shareholders.

``It disappoints me, it doesn't surprise me,'' state Senate President pro tem John Burton told reporters after the audit was released. ``That's what capitalism is all about: Get as much as you can and don't worry about the average people.''

Davis is mulling a number of proposals aimed at using public funds to pay down the utilities' debt in return for some kind of equity stake for ratepayers -- a plan derided as a unnecessary bail-out by consumer advocates.

Federal Officials To Meet With Governors

In Washington, President George W. Bush on Monday appointed Vice President Dick Cheney to head a federal task force to deal with energy prices, saying California's problems were beginning to impact other states.

The appointment came as governors of a number of western states readied for a Thursday meeting with top federal energy officials in Portland, Oregon, to map out a strategy to ease the strain on the power grid.

But while California officials have taken heart from the Bush administration's growing engagement with their crisis, federal officials are repeating warnings that the state should expect no miracle solutions from Washington.

For power managers, meanwhile, the very fact that California continues to escape a repeat of the rolling blackouts which hit twice this month is little short of a miracle itself.

On Tuesday the ISO extended its highest level power emergency -- a so-called Stage Three -- because reserve supplies stayed extremely low. It was the 15th consecutive day that California has been on high alert. And while officials said they did not expect to order more power cuts, blackouts remained possible if the grid appeared in danger of imminent overload.

-- Swissrose (cellier@azstarnet.com), January 30, 2001

Answers

Federal Officials To Meet With Governors

. . . governors of a number of western states readied for a Thursday meeting with top federal energy officials in Portland, Oregon, to map out a strategy to ease the strain on the power grid.

When in doubt,

Have another meeting, scream and shout,

Thereby, it will appear,

you really know what it's all about.

(Add a verse, please, if you wish)

-PHO

-- pho (owennos@bigfoot.com), January 30, 2001.