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California Lawmakers Propose Expansion Of State Agency's Role in Buying Power

(1/31/01 3:42:24 AM PT)

SACRAMENTO, Calif. -- The role of the California government in the state's electric-power market would increase drastically if lawmakers adopt changes proposed yesterday to a bill aimed at solving the state's power crisis.

Gov. Gray Davis and a group of state lawmakers proposed that San Diego Gas & Electric Co. and the state's municipal electric utilities be permitted to buy power directly from the state as part of a plan, unveiled Friday, to solve the crisis. That plan included a bill that would authorize the state's Department of Water Resources to buy electricity from power generators under long-term contracts and resell it to utilities and certain large customers.

The proposed change would expand the bill beyond the original intent of rescuing the state's two largest investor-owned utilities, units of Edison International and PG&E Corp. Under the change, San Diego Gas and the municipal utilities would join Edison's Southern California Edison Co. unit and PG&E's Pacific Gas & Electric Co. unit as customers of the Department of Water Resources.

If adopted, the water-resources agency would become a statewide power authority, whose low-cost power purchases could be resold into every corner of the state, far beyond the targeted service areas of the two biggest investor- owned utilities.

The changes were prompted largely by a letter sent yesterday to the governor by Steve Baum, the chairman and chief executive of San Diego Gas's parent, Sempra Energy, of San Diego. To exclude San Diego Gas's 1.2 million electric customers from the potential benefits of long-term contracts, Mr. Baum wrote, " would worsen today's power crisis," leave the utility's customers "at a substantial disadvantage," and "leave the area's economy at a further disadvantage."

While San Diego-area lawmakers applaud the change, others didn't immediately embrace the bill's expanded scope. "The fiscal aspects of this are enormous," said Sen. Debra Bowen, a Marina del Rey Democrat who is chairwoman of the Senate Energy, Utilities and Communications Committee.

Also yesterday, the state's large commercial and industrial consumers suffered a direct hit from another proposed change in the power-contracting bill. Under that amendment, the state Public Utilities Commission could raise residential electric rates only on usage that exceeds 130% of baseline consumption -- a standard monthly measure of electricity usage by household that varies from region to region and is calculated according to weather and other factors.

Meanwhile, lawmakers reacted angrily to the results of an independent audit of Southern California Edison, ordered by the utilities commission. Among other things, the audit, released late Monday, shows that the utility transferred to its parent about $4.8 billion during the past five years. Of that total, Edison International spent $2.7 billion to repurchase its own stock and paid out an additional $1.6 billion on dividends to shareholders. The remaining $500,000 was used for administrative and general costs.

The audit, performed by KPMG Peat Marwick LLP, comfirms that the utility has run a power-purchasing deficit of $2.5 billion, a figure that has been widely reported. The auditors said the utility likely will run out of cash by mid- February.

Thomas Higgins, senior vice president of Edison International, said the audit "confirms what we have represented about our finances. We have prudently and properly used the money" received from ratepayers.

A similar audit of PG&E, by a different accounting consultant, was expected to be released late yesterday.

In a related matter, the California Power Exchange, which is the market for the purchase and sale of electricity in the state, announced that it was suspending its day-of and day-ahead market operations, the bulk of its business, a direct response to a Dec. 15 order by the Federal Energy Regulatory Commission. The Power Exchange already announced that it has begun laying off staff and will shut down by April.

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-- Martin Thompson (mthom1927@aol.com), January 31, 2001