Calif. asks for another $500 mln to buy energy Thursday March 29, 7:13 PM EST By Andrew Quinn

SAN FRANCISCO, March 29 (Reuters) - California Gov. Gray Davis has asked for another half billion dollars for emergency energy purchases, bringing to $4.7 billion the total allocated to keep the lights on as the state struggles with an energy crisis wrought by its 1996 experiment with deregulation.

Meanwhile, Republican state lawmakers filed suit in San Diego demanding that Davis reveal more details of his energy purchase policy -- saying the seemingly endless flow of cash was imperiling state finances.

Department of Finance spokesman Sandy Harrison said the Davis administration's latest funding request was made late Thursday and intended to finance spot energy purchases beginning in early April.

"That $500 million, which we will begin spending 10 days from now, when added to the previous allocations, gives a total of $4.7 billion," Harrison said.

California launched its energy purchase program in January as the state ordered two days of rolling blackouts to cope with what had become a critical power shortage.

Under the terms of the 1996 power deregulation law, PG&E Corp. (PCG) unit Pacific Gas & Electric and Edison International (EIX)'s Southern California Edison have been unable to pass along soaring wholesale power costs to consumers, leaving them more than $13 billion in debt and without sufficient credit to keep buying power for their 27 million customers.

Davis, scrambling to right a situation which increasingly threatens the economy of the nation's richest and most populous state, ordered the Department of Water Resources to begin negotiating long-term power contracts while buying power on the spot market -- at a cost of close to $50 million per day.

Davis has said these power purchases will be financed by a $10 billion bond issue, although this has yet to occur.

News of the new allocation request came one day after state Controller Kathleen Connell warned that even the proposed bond issue and a 40 percent rate hike ordered by the state Public Utility Commission would not raise enough cash to keep California's power flowing over the next 18 months,

Connell estimated the power purchases would cost $26.8 billion through June 2002. With $7 billion in revenues from this week's rate hike plus the $12.4 billion maximum anticipated from the bond issue, California will still end up with a $7.4 billion shortfall and a looming cash crunch, Connell said.

On Thursday, a group of Republican lawmakers sued Davis, Connell and the Department of Water Resources for details on the power purchase program. Davis has said the negotiations for individual power contracts must remain secret to avoid tipping California's hand to other generators.

"The governor is keeping everyone in the dark," Assemblyman Tony Strickland of Thousand Oaks, said.

"The estimates are that he has spent somewhere between $10 billion and $40 billion; this is nearly half of last year's entire state budget. I believe the people of California deserve to know what they are getting for that outrageous amount of money."

RATE HIKE HELPS UTILITIES - FOR NOW

This week's rate hike, one of the largest in California history, would likely improve the utilities' chances of avoiding bankruptcy -- but did little to resolve the companies' long-term financial problems, analysts said.

"Short-term, it definitely lessens the likelihood of a bankruptcy," said Dot Matthews, analyst for CreditSights Inc., a New York-based fixed-income research service. "Long-term, I don't think we have enough information to know."

The rate hike will help because it will allow the utilities to pay small power producers known as qualifying facilities, or QFs, which have emerged as a major factor in California's day-to-day power supply and last week helped to spark another round of rolling blackouts when they took themselves off line.

"They were the real class of creditors that were most likely to put the utilities into bankruptcy," Matthews said.

The CPUC order Tuesday also began moving money back into state coffers as it required utilities to begin paying up.

Southern California Edison said late on Wednesday it had made a payment of $43.5 million to the state of California for power bought on its behalf between Jan. 19 and Feb. 11.

But a major uncertainty remains on how the state will address the utilities' uncollected costs, Matthews said.

One plan calls for the utilities to sell their transmission assets to the state, and then sell bonds to help erase their red ink, although this plan remains under negotiation in Sacramento and appears to be making little progress.

California officials in February reached a preliminary pact with SoCal Edison to buy the utility's transmission assets for more than $2.7 billion. It is still not clear, though, whether Pacific Gas & Electric will agree, analysts say.

MORE WARNING BEFORE BLACKOUTS

Meanwhile, the Public Utilities Commission ordered Pacific Gas & Electric to begin giving the City and County of San Francisco more warning before instituting rolling blackouts.

City officials, anxious to mobilize emergency personnel in the event of blackouts, had requested more advance notice of the power cuts -- which the utilities have imposed almost without warning in an effort to prevent rioting, looting or other crime.

But the PUC, in an order posted late Wednesday, said San Francisco should be told as soon as possible exactly when and where the blackouts were likely to strike.

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-- Martin Thompson (mthom1927@aol.com), March 29, 2001