from http://dailynews.yahoo.com/h/nm/20010201/ts/utilities_california_dc_155.html

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By Joshua Chaffin

SACRAMENTO, Calif., (Reuters) - California Gov. Gray Davis (news - web sites) signed a multibillion dollar emergency energy rescue plan on Thursday, putting the state squarely in the business of buying and selling power that its cash-strapped utilities can no longer afford.

Davis signed the bill after it passed narrowly -- and on its second try -- through the state assembly. Officials hope that moving the state into the market will help stabilize California's power supply, which has been thrown into chaos by skyrocketing wholesale energy costs and the state's own failed 1996 power deregulation law.

The nation's most populous state has been hit by power blackouts due to tight supplies of electricity. To meet demand, California utilities have been forced to pay steeply higher prices for wholesale electricity on the spot market but have been unable to pass those costs through to consumers under the deregulation law.

``This is a gigantic leap forward for California,'' Davis said in signing the bill, which goes into effect immediately. ``This measure offers our best hope of avoiding electricity rate increases in future years.''

Passage of the bill marked a political victory for Davis, who heads for Portland, Ore., Friday for a summit with federal energy officials and fellow western governors as California's power crisis begins to hit well beyond the state's borders.

The legislation, part of a plan to stave off the bankruptcy of the state's two largest utility companies, had run into a roadblock early Thursday after Republican legislators raised fears it could open the way for big consumer rate hikes.

But after heavy lobbying from Davis and his fellow Democrats, the bill eventually passed on the second vote by exactly the two-thirds majority it needed.

``The choice is if we don't do this, the imminent (utility) bankruptcy will in fact be something that is so awful...in terms of a direct effect on ratepayers that it is almost unimaginable,'' Assembly member Fred Keeley, the author of the measure, said after Thursday's vote.

``This bill is an important step for us to take which can stabilize the situation,'' Keeley said.

In a fresh sign of how serious things have become, the state's largest utility company PG&E Corp.'s Pacific Gas & Electric, announced Thursday that it would pay its suppliers only about 15 percent of what they are owed, and that it and its parent company were defaulting on a combined $726 million in short-term commercial paper.

The defaults, which were expected, were disclosed in a filing with the Securities and Exchange Commission (news - web sites).

And, as California struggled through its 17th day of critically low electricity supplies, Davis also unveiled an $800 million energy conservation program aimed at sharply reducing electricity demand during the coming summer months.

Bill Makes State A Power Player

The bill signed Thursday empowers the state's Department of Water Resources -- already California's largest buyer of wholesale electricity -- to sign long-term energy contracts with suppliers, locking in rates officials hope will be far lower than the astronomical prices currently charged on the spot energy market.

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

And, in one of its most controversial provisions, it authorizes the California Public Utilities Commission (news - web sites) to approve rate hikes for consumers who use power in excess of a ``baseline'' rate deemed sufficient for running an average home.

In the first attempt to pass the bill early Thursday, Republicans objected to the notion of consumer rate hikes and questioned the wisdom of using a bond issue to address the problem.

But those objections eventually fell before Davis' concerted lobbying and the growing realization that California has to do something -- and fast -- to avert a complete meltdown of its energy supply system.

``Sometimes, unfortunately, we have to make decisions that are either bad or worse,'' said Assembly Republican leader Bob Campbell after joining those supporting the bill.

Utilities Teetering

The biggest fears have centered on the financial state of Pacific Gas & Electric and the state's other major utility, Edison International unit Southern California Edison (news - web sites).

Both companies say they have been pushed $12 billion in debt by skyrocketing wholesale energy prices that -- under the terms of California's 1996 power deregulation law -- they are banned from passing on to consumers. Both companies have seen their credit rating slashed to ``junk'' status and warn they are close to declaring bankruptcy.

In the latest step in that direction, Pacific Gas & Electric said Thursday it would be able to pay only a small portion of its outstanding debt to a number of power generators as well as the California Power Exchange (CalPX) and the California Independent System Operator (news - web sites) (ISO), which operates the state's power grid.

Pacific Gas & Electric said it owes the generators $437 million, and CalPX and the ISO $611 million, up from an earlier estimated $583 million.

The company also said it has defaulted on $437 million of commercial paper, and expects to default on $436 million more through the end of March unless its financial situation changes dramatically. PG&E Corp. has defaulted on $289 million, and expects to default on $212 million more by March, it said.

Conservation Campaign Unveiled

The flood of bad financial news has done little to slake California's thirst for power.

On Thursday, the ISO declared the state's 17th consecutive day of a top-level power emergency -- saying supplies were so low that rolling blackouts could be ordered at any time.

-- (perry@ofuzzy1.com), February 01, 2001