State bill for power up 57%, Davis says Rates jump in 2 weeks since PG&E bankruptcy

Lynda Gledhill, Chronicle Sacramento Bureau Wednesday, April 18, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/18/MN71072.DTL

Sacramento -- The state's spending on electricity has shot up more than 50 percent since PG&E declared bankruptcy, thanks in part to surcharges being tacked on by power generators worried they won't be repaid, Gov. Gray Davis said yesterday.

Figures released by the governor's office showed that the state was now spending an average of $73.2 million a day for power, adding to a $5.2 billion total the state has run up since the major utilities fell too deeply into debt in January to pay for electricity.

That money is supposed to come back to the state through the sale of bonds, but yesterday's disclosure by Davis raises questions about whether the state will need to raise electricity rates further or even increase taxes to cover the cost.

Emerging from meetings with legislators, Davis said the average price per megawatt hour paid by the state had increased 57 percent since the week before Pacific Gas and Electric Co. declared bankruptcy April 6.

The bankruptcy filing is directly related to the price hikes, Davis said. With PG&E's financial status in limbo for perhaps years and the state's unpaid bill increasing by the day, generators are viewing the state as less than a reliable customer, the governor said.

Davis used the numbers as part of his campaign to persuade state lawmakers to approve a deal he struck last week with Southern California Edison in hopes of keeping it out of bankruptcy. Under the agreement, the state would pay the utility $2.7 billion for its transmission lines and guarantee it an 11.6 percent rate of return.

SOME DEMOCRATS LUKEWARM Some Democrats have been lukewarm to the deal, and Republicans oppose it, labeling it a generous bailout for the utility. Although Davis proclaimed himself pleased with separate meetings yesterday with Democrats and Republicans, one GOP legislator said Davis had turned testy and launched into a profanity-laced tirade when he was questioned about some of his actions.

For Davis, the higher prices for electricity are a strong argument for approving the Edison deal.

"The generators are fearful that they won't get money back, so they charge the state a credit penalty," Davis said. "So the more people who say bankruptcy is not such a bad option, the more they raise their prices. And those are costs that taxpayers and ratepayers have to absorb."

Davis added that "I don't want to see that." He said he wanted the "ultimate solution" to fall within the average 37 percent rate increase he proposed two weeks ago. The state Public Utilities Commission is moving to impose a tiered rate increase averaging 40 percent.

However, the flood of money leaving state coffers could make it difficult for Davis to avoid damage to the state's budget.

Davis and state legislators hoped to float bonds to pay back the power purchases. At first the total was going to be $10 billion, but in recent weeks that has increased to $14 billion this year and at least $9 billion next year.

The larger the bond issuance, the greater the increase in electricity rates that will be needed to satisfy bond houses that the money will be repaid -- or the greater the likelihood that the money will come directly from taxpayers.

And the state will not be getting out of the power purchasing business any time soon. Even if the deal with Edison is approved, the company won't resume its own power buying until Jan. 1, 2003. What will happen with PG&E is up the bankruptcy judge.

BONDS TO BE ISSUED A spokeswoman for state Treasurer Phil Angelides said that he was still studying how PG&E's bankruptcy affected his actions, but that he planned to move ahead with bond issuance.

According to Davis, the state's average weekday power purchases March 26-30 was $45.8 million a day. That increased to $57.4 million a day April 2-6, and then jumped to $73.2 million a day April 9-13.

Davis did not name specific generators who had increased costs to the state.

A spokesman for Mirant Energy said the company was not aware of any price difference since PG&E declared bankruptcy.

John Sousa, a spokesman for Dynegy, said it had signed a long-term contract with the state for power purchases and was no longer dealing on the daily market.

Representatives of other major power generators could not be reached for comment.

Republicans in the state Senate stepped up their attacks yesterday on Davis' handling of the crisis. Sen. Tom McClintock, R-Northridge, said Davis had turned angry in his meeting with GOP legislators when McClintock asked him "how we're going to attract billions of dollars of investments in new power plants when you're threatening to seize their assets the moment they set foot in California."

Davis denied he'd ever said such a thing, McClintock said.

McClintock said he was quoting the governor's January State of the State speech, in which Davis said he would consider using the power of eminent domain to seize power generators.

"They're not going to pin this on me," Davis angrily told Republicans, according to McClintock. "I'm not going to be the fall guy."

"It was somewhat ungubernatorial," McClintock said. "He didn't do himself any favors in caucus."

"I got a sense of a certain desperation," he added. "I think the pressure is clearly getting to him."

Davis spokesman Steve Maviglio acknowledged the governor "had a frank, productive and occasionally animated exchange" with Senate Republicans, but said McClintock's version was exaggerated.

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Chronicle staff writer Greg Lucas contributed to this report. / E-mail Lynda Gledhill at lgledhill@sfchronicle.com.

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

Answers

Sounds to me like the state of California, itself, is on the verge of bankruptcy.

-- Billiver (billiver@aol.com), April 18, 2001.

As I expected, the money is being sucked out of CA. $10B has become $14B, the total will go higher. The bonds will go on sale, they will have trouble selling them. They will have to offer generous returns to entice buyers. That will add to the cost of the electricity. They probably will not be able to sell all the bonds.

If the state buys the lines, that too will add to the cost. The state is not remotely qualified to run their grid, that will add to the cost. They will pay SC and PG&E 11%, that will add to the cost.

The state will not get their billions back. The bonds won't sell. Supplies/suppliers will continue to dry up. Costs will continue to rise, at least through the summer.

Why, because two things have to happen and happen very soon. Neither will. First, rates have to go up. Not some token amount, enough to cover all the cost, 200-300% Second they need to start getting more systems, new systems online. The later can take several years.

With out these two things, there is no solution in site, there is no way to attract investors. The quality of the bonds will deminish. They will not be able to attract out of state suppliers to build in the state. The whole mess will continue to worsen until the state goes bankrupt or the Feds step in.

If the deep pocket feds step in the sucking sound will increase geometrically. The underlying problem will get resolved, but way too late and at way too much money. The American taxpayer bailout will dwarf the S&L fiasco, probably hundreds of billions.

My prediction, CA is going bankrupt before Christmas. Spence Abraham, the Energy Secretary (former asshole Senator from Michigan, my state) will jump in, and the money will flow. Abraham not even remotely qualified for his post. I might be a little pessimistic here $1Trillion.

Yes $1T. $100M per day. $1B every 10 days. 3 years.

-- Tom Flook (tflook@earthlink.net), April 18, 2001.