Calif DWR Cut Off From Using State Funds To Buy Power Updated: Monday, March 19, 2001 08:16 AM ET (This article was originally published Friday)

LOS ANGELES (Dow Jones)--The California Department of Water Resources will no longer be allowed to dip into the state's General Fund to borrow money to buy electricity for the state, the chair of the state's budget committee said Friday.

The budget committee will deny further requests for state funds to buy electricity unless state regulators immediately carve out a revenue stream to allow the Department of Water Resources to recover the money, according to a letter state Sen. Steve Peace sent to state Department of Finance Director Tim Gage.

In a copy of the letter, obtained by Dow Jones Newswires, Peace, D-El Cajon, said that he is "concerned about the prospect of continuing to approve deficiency requests for electricity purchases...in the absence of any discernible progress by the California Public Utilities Commission to provide for the recovery of these funds."

A PUC Administrative Law Judge was expected to release guidelines Friday on the size of rate revenues that the DWR must collect from the state's three investor-owned utilities.

The guidelines were not released as of late Friday, and a spokeswoman for PUC President Loretta Lynch said she did not know the reason behind the delay.

PUC Commissioner Richard Bilas said the commission is expected to discuss at its March 27 meeting exactly how much money the DWR will receive from PG&E Corp. (PCG, news, msgs) unit Pacific Gas & Electric, Edison International (EIX, news, msgs) unit Southern California Edison and Sempra Energy (SRE, news, msgs) unit San Diego Gas & Electric.

Last Friday, the DWR secured another $500 million from the state's General Fund to buy power. The state has authorized $3.7 billion to purchase wholesale electricity and has already burned through more than $3 billion, spending upwards of $50 million a day on electricity in the volatile spot market.

AB1X, the legislation that authorized the DWR to purchase the state's bulk power needs on behalf of the cash-strapped utilities, was signed into law two months ago.

A provision in the bill also authorized the state to issue $10 billion in revenue bonds to finance the long-term power supply contracts the DWR has entered into with generators. But first, the PUC must carve out a a revenue stream for the DWR before the bonds can be issued.

State Treasurer Phil Angelides said that the $10 billion will finance wholesale power purchases through September if the average price for power paid since January, when the DWR first began buying electricity in the spot market, is $250 a megawatt-hour.

However, California has paid well above $300/MWh average in January and about $228/MWh at the end of February, Gov. Gray Davis said recently.

The PUC approved a measure last week that allows the DWR to recover all of the money it spends on power, even if it means raising electricity rates.

Peace, one of the lawmakers who helped push through the state's deregulation law, said in the letter that he will meet with the Joint Legislative Budget Committee on a daily basis "for the purpose of denying any such future deficiency requests unless immediate actions are taken to resolve this situation."

-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com

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-- Martin Thompson (mthom1927@aol.com), March 19, 2001