Light bill: $2 million per hour By Jim Sanders Bee Capitol Bureau

(Published Feb. 18, 2001)

Keep your eyes on the money.

The numbers are staggering.

Since stepping in to buy power for debt-ridden private utilities, California has been picking up a whopping tab averaging about $2 million an hour, 24 hours per day, seven days per week.

The spending has been continuous for roughly a month now, with no immediate relief in sight.

California's total will approach $2 billion by the end of February. That figure doesn't include billions more the state could spend on everything from energy conservation efforts to paying a portion of the utilities' debts.

And costs for buying energy on the spot market are expected to keep rising until state Treasurer Phil Angelides can secure short-term financing, perhaps next month, that is expected to be replaced by long-term revenue bonds in May.

The plan is to reimburse state coffers once the revenue bonds are sold, thus avoiding significant hits to the state budget, but meanwhile officials are diverting hundreds of millions in funds targeted for programs.

Among them: $200 million to line the All-American Canal near Mexico, $135 million for Cal Fed water projects benefiting the San Joaquin-Sacramento Delta, $70 million for flood protection, $35 million for a Coachella Valley groundwater project, and $30 million for park acquisition and expansion.

Officials say the diversion has not immediately affected the projects, however, because most were not scheduled to begin immediately.

As California grapples day after day with the energy crisis, residents may ask themselves a simple question: How much is $2 billion?

If you lived for 2 billion minutes, you'd die at the ripe old age of 3,805.

You could hire more than 44,000 new police officers for $2 billion, or place more than 50 new teachers in each of California's public school districts.

You could run the state's capital city, Sacramento, for nearly four years, every department from police to fire to public works.

You could buy nearly 6,000 fully equipped transit buses, capable of carrying 240,000 riders in a bumper-to-bumper line from the Capitol Rotunda to roughly the Carquinez Bridge.

Veteran legislators say the energy crisis is swallowing money at an unprecedented rate -- and is like pouring money into a hole. It's not beefing up state services but simply preserving what we've had for decades: The ability to turn on lights whenever we want.

"We're getting into these deals, and we don't know where we're going," said Assemblyman Dave Cox, R-Fair Oaks. "There isn't an end game. There isn't a strategy to get California out of the energy business."

But Steve Maviglio, a spokesman for Gov. Gray Davis, said there is, indeed, a grand plan and it consists of three parts: promoting conservation, boosting power generation and stabilizing rates through long-term contracts at bargain rates.

"They're pieces of a puzzle," Maviglio said. "When you put them together, they constitute an end game."

California's planned $10 billion revenue bond issue appears to be the largest in U.S. history, according to Angelides, who said the total could rise to $17.5 billion depending on interest rates and other factors.

The bond is not without risk, however, and one key is for the state to secure multiyear energy contracts quickly: If offers fail to meet expectations in length, price, quantity or timing, the state could be stuck with a crushing financial burden and no quick fix.

The Davis administration has declined to discuss details of the contract offers it has received, saying disclosure could hamper negotiations.

But Maviglio said, "We're making enormous progress," adding that the state is on schedule to strike the energy deals without delaying the bonds.

Assemblyman Darrell Steinberg, D-Sacramento, said officials must not get so focused on energy that they lose sight of other priorities.

"There are other important needs in California -- in education, transportation, health care, mental health, foster care and other areas," he said.

"Our response to the energy crisis is necessary, but we need to make sure we get our money back so it can be spent on other things," he added.

Steinberg and other officials say the huge sums being poured into power purchases could have a chilling effect on other budget-related decisions, or legislation, until the long-term bonds are sold and officials know the terms, timing and payback details.

Legislators also worry about indirect fallout from the energy crisis, including the possibility that large businesses will be discouraged from building, expanding or relocating in California because of power-related fears.

By stepping in to buy short-term power for two debt-ridden private utilities -- Southern California Edison and Pacific Gas and Electric Co. -- the state has ended the immediate threat of power blackouts.

But there's no guarantee that blackouts won't occur this summer, when demand could exceed supply and the state's planned $10 billion in revenue bonds for long-term power purchases is only a fraction of potential costs from the energy crisis.

Adding to the state's bill could be:

A plan to ease the private utilities' debt, which could reach $13 billion, by purchasing power transmission lines. The money would be raised through revenue bonds and repaid by charges to ratepayers.

The cost of below-market energy contracts seized from the California Power Exchange by Davis under emergency powers. The exchange has billed the state $1 billion, but that amount is in dispute. Davis' action kept the contracts from being auctioned off after the two utilities failed to make payments.

State efforts to improve energy conservation measures and boost power generation. In his proposed state budget, Davis set aside $1 billion for energy-related improvements.

The governor consistently has said the energy crisis can be resolved without harming state coffers or spawning major rate increases by using revenue bonds that will be repaid by the utilities -- not by California taxpayers -- over a period of perhaps 10-15 years.

Even under the most optimistic scenarios, however, some increases seem inevitable.

A temporary 9 percent rate increase approved by the state Public Utilities Commission in January is expected to be made permanent, officials say. And Assembly Bill 1x, which was signed into law Feb. 1, allows future rate hikes for businesses and residential customers using more than 130 percent of a baseline amount of electricity.

Assembly Minority Floor Leader Bill Campbell, R-Orange, said surviving the crisis without rate increases by PG&E and Edison would require nearly every revenue assumption to be perfect.

"In the real world, you never hit all your assumptions," he said.

Under the worst economic scenario for ratepayers, debt-reduction talks with the state would collapse and the utilities would win a court order paving the way for potential double-digit rate increases to recover their losses.

Consumer advocate Douglas Heller of the Foundation for Taxpayer and Consumer Rights said the simple truth is that billions can't be spent without someone getting a bill: Either ratepayers get hit with increases or today's debts must be borne by the next generation.

"You've got an extraordinary bill that has to be paid and a political interest in hiding it, so you spread it out so the children of ratepayers will have to blame the children of politicians -- not the politicians themselves," Heller said. "It's just passing the buck."

Apart from the direct cost of electricity, officials fear the economy and job market could suffer for years to come if businesses become less bullish on California or if families cut their spending due to rising gas and electricity bills.

"History supports the view that we can absorb a short-term 'price shock' in the cost of utilities without irreparable damage," said a recent analysis of the energy crisis by the Los Angeles County Economic Development Corp.

"However, a 'supply shock' lasting 12 months or more could be devastating to consumer and business confidence and must be avoided as a matter of national urgency," the report concluded.

Bee staff writer John Hill contributed to this report.

http://www.capitolalert.com/news/capalert01_20010218.html

-- Martin Thompson (mthom1927@aol.com), February 18, 2001

Answers

Published Friday, Feb. 23, 2001, in the San Jose Mercury News

State's energy price tag increases

UTILITY RESCUE : GOVERNOR'S FINANCIAL TEAM REQUESTS MORE CASH TO BUY ELECTRICITY; TOTAL COST COULD RISE TO $3 BILLION BY MARCH

BY DION NISSENBAUM Mercury News Sacramento Bureau

SACRAMENTO -- California's energy crisis took another big bite out of the state budget Thursday when finance aides to Gov. Gray Davis announced that the cost of buying energy may top $3 billion by mid- March.

In a move that raised new alarms for lawmakers, the governor's finance team for the third time this month asked for $500 million to buy electricity in the coming weeks while Davis tries to work out a deal to bail out the state's near-bankrupt utilities. That, combined with money spent last month to buy energy, could drain the state coffers of $3 billion by St. Patrick's Day.

The request for more cash came on the same day that California spent its first day in weeks without an official energy emergency and Davis held critical talks with the heads of Pacific Gas & Electric Co. and San Diego Gas & Electric Co. The talks are aimed at rescuing the two companies and Southern California Edison from financial collapse.

While Davis had expressed hope last week of working out a deal by today, sources said that an agreement still remains elusive.

Until a compromise can be hammered out, the state is being forced to pay upward of $50 million a day from the general fund to buy electricity.

State leaders expect that the money will eventually be repaid to the general fund under a $10 billion bond package. But lawmakers are growing increasingly concerned about the short-term impact on the state fiscal plan.

Assemblywoman Carole Migden, D-San Francisco, said the latest request for more money could create ``greater concern and anxiety'' among lawmakers and added that the energy crisis was going to make it harder to fund other programs, such as support for abused children.

``It's going to be a bleak year for other budget priorities,'' said Migden, who is chairwoman of the powerful Assembly Appropriations Committee.

Earlier this week, the state's independent financial analyst warned that the energy crisis could eat into state money the governor wants to spend on other things such as the environment and public safety.

While lawmakers have so far bitten their tongues about the growing power price tag, Migden said the Legislature might be hesitant to allow the costs to go any higher.

``I can't imagine another infusion after this being required,'' Migden said. ``I think this has to be the last request because we're going to hit fundamental core programs.''

Waiting for bailout plan

California stepped in to buy the energy last month after PG&E and Southern California Edison lost the financial wherewithal to do it themselves. At the time, state leaders reluctantly agreed to buy the energy for a short period of time as part of a larger plan for California to sign long-term contracts with power generators.

But those negotiations have failed to produce much energy so far, and Davis said earlier this week that the power producers are hesitant to sign any deals until California agrees to a bailout plan for the utilities. On Thursday, one power producer -- Williams Cos. -- announced that it had signed a 10-year contract with the state to provide up to 1,400 megawatts of power to California.

In a bid to work out the bailout plan, Davis and his advisers met Thursday and were to meet again today with top executives from all three electric utilities in financial trouble. The Democratic governor wants to buy 26,000 miles of high voltage transmission lines owned by the three companies in exchange for helping the utilities pay off $13 billion in debts. The utilities are being asked to protect thousands of acres of wilderness lands they own, hang onto power plants that provide the state with its cheapest electricity, and drop explosive lawsuits that could allow the companies to dramatically raise customer rates.

But sources said talks have bogged down on the transmission line deal, which PG&E has been reluctant to accept.

Alternative energy helps out

While talks slogged along in the governor's office, state lawmakers announced that another key piece of the puzzle needed to solve the energy crisis was falling into place.

State Sen. Jim Battin, R-Palm Desert, and Assemblyman Fred Keeley, D- Santa Cruz, said that alternative energy producers had agreed to dramatically lower their prices in a deal that could save California $3 billion to $4 billion.

Those energy producers, nearly 700 wind, solar and natural gas-fired plants, provide about a third of the state's energy.

http://cgi.mercurycenter.com/premium/nation/docs/davis23.htm

-- Martin Thompson (mthom1927@aol.com), February 23, 2001.