Wednesday January 31 10:17 PM ET California Begins Nailing Down Energy Plan

By Andrew Quinn

SAN FRANCISCO (Reuters) - California began nailing down the details of its emergency energy rescue plan on Wednesday, moving through legislation that will allow the state to buy power and supply it directly to electricity-starved consumers.

In a major move to repair the damage caused by California's failed 1996 bid to deregulate the power market, the state Senate approved a bill to permit the state itself to enter long-term contracts with energy suppliers and issue bonds to cover the costs.

The legislation also sets aside another $500 million to continue financing California's emergency power purchases on the chaotic spot market.

``This is a measure that I undoubtedly hate as much as anyone on this floor,'' said Democratic Sen. Debra Bowen. ``But it is far less odious than the alternative, which is to do nothing and to allow the state to continue with no end in sight.''

Gov. Gray Davis (news - web sites), desperate to find a resolution to the power crisis bedeviling the nation's most populous state, has promised to sign the bill as soon as it hits his desk.

Lawmakers, meanwhile, were still locked in debate over measures designed to take pressure off Edison International's Southern California Edison and PG&E Corp.'s Pacific Gas and Electric, which have racked up billions of dollars of debt buying power at high wholesale prices that they are banned from passing onto consumers under terms of the 1996 deregulation law.

The action in Sacramento came as power grid managers declared California's electricity supplies to be critically low for the 16th consecutive day -- meaning that the state remained under the threat of rolling blackouts at any time.

It also came as the public and lawmakers digested the results of two state-ordered audits into the books of the utilities and their giant parent companies which painted a grim picture of their financial prospects.

In the latest bit of bad news from the utilities, Pacific Gas & Electric and its parent PG&E Corp faced a combined $700 million in short-term debt due on Wednesday, and officials said it looked likely that they would default.

In Washington, meanwhile, the head of the U.S. Senate Energy Committee suggested that the federal government might be forced to step in with funds if California, also the nation's richest state, cannot find a way for to pay for the energy it needs.

Water Department To Buy Power

The bill approved 27-8 by the state Senate on Wednesday sets the legal framework for Davis' plan to move the Department of Water Resources -- already California's largest buyer of wholesale power -- into a central role as the state's agent in the power market.

The department has already held an Internet-based auction to solicit bids from power producers for supply contracts ranging from six-month to ten-year periods. It is not clear how much power the state hopes to lock in from these contracts, which are expected to feature prices significantly lower than on the volatile spot market.

To pay for the power purchases, the bill authorizes the state to issue bonds backed by electricity revenues -- an amount that some estimates see hitting $10 billion.

The bill also allocates $500 million to ensure the state has enough money to keep the lights on in the coming weeks. This is in addition to the $400 million it has already used up to buy power on the spot market. Officials have estimated it is costing taxpayers some $45 million per day to buy the additional power California needs.

The bill approved on Wednesday also contains a controversial provision that allows the Public Utilities Commission to raise rates if consumer usage rises above a certain ``baseline'' level -- a move which could impact residents of inland areas who are heavy users of air conditioning.

Some legislators have warned that this could be opening the door to widespread rate hikes.

``If we're suggesting to the public that the average customer is not going to see a rate increase, we're not telling the truth,'' state Sen. Jackie Speier said on Tuesday during a hearing of the Senate Appropriations Committee.

Audit Results Lead To Criticism Of Utilities

Some lawmakers also questioned the necessity of a rescue package at all, pointing to the results of two state-ordered audits into the finances of the cash-strapped utilities and their parent corporations.

The audits gave no indication of any intentional wrong-doing among executives at either the utilities or their parent companies, which have acted completely legally to limit their financial exposure to the utilities' woes.

But the audit results -- which explained how the utilities had transferred millions of dollars to their parent companies and failed to appreciate the severity of the looming energy crisis --looked likely to fuel attacks by consumer groups on any taxpayer-funded rescue package for the companies.

``This bail-out of the utilities is a huge mistake, and it is just postponing a problem which will come back to bite the consumers,'' said Nick Suplina, a spokesman for Global Exchange, an San Francisco human rights and consumer advocacy group. ``What we need is state power.''

-- Swissrose (cellier@azstarnet.com), February 01, 2001