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Please see the following articles:
Sac Bee, Tues, 4/10: "State, Edison reach accord: California would pay $2.76 billion for the grid and let rates be used to defray debt" Sac Bee, Tues, 4/10: "Takeover of grid in doubt: PG&E's bankruptcy filing complicates the state's plan to acquire power lines" Sac Bee, Tues, 4/10: "PG&E clashes with regulators in court session " Sac Bee, Tues, 4/10: "Judge blasts FERC, renounces power dispute " Sac Bee, Tues, 4/10: "Dan Walters: Lots of words, but is the crisis finally coming to a climax?" San Diego Union, Tues, 4/10: "Davis closes in on deal for Edison's lines" San Diego Union, Tues, 4/10: "White House urges energy spending cuts" LA Times, Tues, 4/10: "Davis Arranges to Buy Edison's Share of Grid" LA Times, Tues, 4/10: "PG&E Bankruptcy Case Opens in Tense, Packed Federal Courtroom" LA Times, Tues, 4/10: "Oil Official Urges Eased Restrictions on Industry" LA Times, Tues, 4/10: "Give Power Buyers a Club in Cartel Wars" (Commentary) SF Chron, Tues, 4/10: "State's Financial Exposure Is a Growing Worry DAILY LOSSES: Experts say fiscal stability at risk " SF Chron, Tues, 4/10: "Davis Seals Power Deal With Edison to Buy Lines 10-YEAR PACT: $2.76 billion swap buys low-cost electricity " SF Chron, Tues, 4/10: "PG&E Stumps Math Whizzes GO FIGURE: Who knows how much this will cost us? " SF Chron, Tues, 4/10: "PG&E Moves Quickly to Involve Federal Court in State's Crisis Strategy could allow judge to authorize " SF Chron, Tues, 4/10: "Going Dark Extra Day to Save Power San Mateo County tries to cut costs " Mercury News, Tues, 4/10: "Davis forges deal to rescue Edison" Mercury News, Tues, 4/10: "Solar tech shines in market struggling with power problems" Mercury News, Tues, 4/10: "Getting a line on electricity" (Editorial) Mercury News, Tues, 4/10: "Price for gas surges again" Mercury News, Tues, 4/10: "Legislatures to plea for price cap" Orange County, Tues, 4/10: "Edison, state strike deal" Orange County, Tues, 4/10: "Davis' power plan is in doubt" Orange County, Tues, 4/10: "AES threatens to pull out of fast-track effort" Orange County, Tues, 4/10: "Electricity Notebook PG&E may use reserved cash to purchase energy" Orange County, Tues, 4/10: "State's power fees hinge on good credit" Individual.com (business wire), Tues, 4/10: "AES NewEnergy Offers Program to Help Commonwealth Edison Customers Reduce Electricity Costs and Increase Reliability This Summer" Individual.com (AP business wire), Tues, 4/10: "Feds Embroiled in Power Debate" Individual.com (AP business wire), Tues, 4/10: "Calif. Reaches Deal on Power Lines" Individual.com (AP business wire), Tues, 4/10: "California ISO Declares a Statewide Stage Two Electrical Emergency; Conservation Needed as Demand Surges and Supply Tightens" ------------------------------------------------------------------------------ -------------------------------------------------------------- State, Edison reach accord: California would pay $2.76 billion for the grid and let rates be used to defray debt. By Emily Bazar Bee Capitol Bureau (Published April 10, 2001) Just three days after Pacific Gas and Electric Co. filed for bankruptcy protection and cut off negotiations with the state, Gov. Gray Davis on Monday announced an agreement with Southern California Edison to buy the utility's transmission lines in exchange for helping it pay off billions of dollars in debt. Key points of the accord between state and Edison The agreement between the state and Southern California Edison must be approved by the Legislature and Public Utilities Commission. Some points, including details of the transmission grid sale, still must be negotiated. Edison agreed to: Sell its transmission system for $2.76 billion. Use its generation assets to provide low-cost regulated power to the state for 10 years. Dismiss lawsuits for higher electricity rates. Commit the entire output of a generating plant to providing power in California at a fixed price for 10 years. Grant perpetual conservation easements: 20,600 acres of precious lands related to the Big Creek hydroelectric facility and 825 acres related to the eastern Sierra. Invest $3 billion over five years in capital improvements, to be covered by a rate increase of undetermined size. Edison's parent company will refund $400 million to its subsidiary. The state agreed to: Continue buying power through Dec. 31, 2002. Allow Edison to issue $3.5 billion in bonds for all debt not covered by $1.5 billion net gain Edison realizes from transmission line sale. Bonds repaid by a dedicated portion of the rate. Allow Edison to continue receiving its current 11.6 percent rate of return for 10 years. The Democratic governor said the state would pay Edison $2.76 billion for its transmission lines, and would dedicate a portion of consumers' electricity rates to paying off the utility's debt, estimated at more than $5 billion. Davis praised Edison for its persistence in negotiations, but upbraided PG&E for filing Chapter 11. He added, however, that the state remains willing to offer PG&E a comparable deal if it wishes to resume talks. "It was hard, arduous work, but the result was positive for every consumer in this state," Davis said at a news conference in Los Angeles. "It proves you can solve problems of the state if you stay at the table, if you're responsible and (if) you're resolute." The deal came 47 days after Davis announced an "agreement in principle" with Edison. Monday's announcement was received coolly by the governor's fellow Democrats in the Legislature and criticized as a giveaway by consumer advocates. Harvey Rosenfield of the Foundation for Taxpayers and Consumer Rights branded it a "massive ratepayer bailout" that protects only the utility's shareholders and executives. "I'd call this a desperate deal by a panic-stricken governor," Rosenfield said. The deal is "designed to appease Wall Street and to redeem the governor in the eyes of the energy and utility industry." Rosenfield said he will fight the agreement, which must be approved by the state Public Utilities Commission, the state Legislature and the federal government before it becomes final. The process could take as long as two years. Rosenfield said he's prepared to put an initiative before voters in November 2002 that would undo the agreement if necessary. The deal announced by the governor would require the state to pay $2.76 billion for Edison's transmission lines, or 2.3 times book value. Edison is expected to profit by $1.5 billion from the purchase, and would use that money to pay off some of its debt. Edison's parent company would refund $400 million to its subsidiary, which would also go toward paying off the utility's debt. The utility would pay off the rest of its debt through corporate bonds, which would be repaid by consumers through a portion of their electricity rates. Before PG&E's bankruptcy-protection announcement Friday, Davis came out in support of an average 26 percent rate increase. In exchange, Edison has agreed to provide low-cost power to the state for 10 years from both regulated and nonregulated power plants, and to dismiss lawsuits seeking higher electricity rates. It also would grant perpetual conservation easements on more than 21,000 acres of forestland. In addition, Edison has pledged to do work on its lower-voltage distribution grid that would trigger a second, unspecified rate increase, to take effect in 2003, said Stephen Frank, chief executive of Southern California Edison. The utility would invest $3 billion in the poles and wires it still owns, and would collect that money from consumers under a formula it will propose later this summer, possibly in August. The formula would have to be approved by the PUC, which is overseen by a Davis-appointed majority. The legislative approval required for the entire agreement likely won't come without a fight. The bill that will contain the deal's provisions is expected to require only a simple majority for passage, which means 41 votes in the Assembly and 21 in the Senate. Though it could squeak through without Republican votes, it's not clear whether all Democrats will support the plan. Assembly Speaker Robert Hertzberg, D-Sherman Oaks, reserved judgment on the plan until he can see details for himself. "I am most anxious to review the protections the plan provides to California residential and business consumers," he said. Senate leader John Burton, D-San Francisco, was more blunt. Burton said he's concerned about dedicating a portion of consumers' rates to pay off Edison's debt. "I have always had a concern about a dedicated rate component that would have ratepayers picking up utilities' back debt that may have been built up fraudulently through price gouging or mismanagement," he said. "There is a question of whether ratepayers should have to gargle that." Sen. Debra Bowen, D-Marina Del Rey, suggested that power generators must also share the debt burden. "It sounds like the plan puts ratepayers on the hook for 100 percent of the rates charged by the power generators -- rates that even (the Federal Energy Regulatory Commission) found to be unjust and unreasonable." Frank, who heads Edison International's regulated utility, argued that the utility is entitled to collect the funds, and estimated that Edison ratepayers would be paying off $2 billion of the disputed "undercollection" for the next 15 years. "We do expect to recover all of our costs on this, but we also are contributing a great deal to the overall deal," Frank added, including giving up ownership of transmission lines. Davis said that he expects to work out a deal with San Diego Gas & Electric soon. The governor added that he still hopes to reach an agreement with PG&E. But in a statement, PG&E officials said they aren't planning on returning to the negotiating table unless they are directed by the judge handling their bankruptcy protection case. "Given our set of facts, we continue to believe that Chapter 11 reorganization is the most feasible means to reach a solution," the statement said. "We will proceed at the direction of the bankruptcy court." The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com. Bee Staff Writers Carrie Peyton and Stuart Leavenworth contributed to this report. ------------------------------------------------------------------------------ ------------------------ Takeover of grid in doubt: PG&E's bankruptcy filing complicates the state's plan to acquire power lines. By Stuart Leavenworth Bee Staff Writer (Published April 10, 2001) Can California be nourished by part of a hot dog? A growing chorus of lawmakers, consumer activists and others say no. On Monday, the governor reaffirmed his plans to take over Southern California Edison's portion of the electrical transmission grid, an asset that Senate leader John Burton once called a "hot dog" in a pitch to reporters. But Pacific Gas and Electric Co.'s bankruptcy filing Friday throws into doubt whether California can take over PG&E's power lines, and now even one-time supporters are raising questions about the plan. "There may be some value in having the state own the entire transmission grid, but it's not clear to me what the benefit is to ratepayers if the state is only acquiring a quarter of it," state Sen. Debra Bowen, chairwoman of the Senate's energy committee, said soon after Gov. Gray Davis announced his agreement with Edison. For months, supporters of a grid takeover -- including Davis, Burton, State Treasurer Phil Angelides and consumer activists -- have pressed PG&E, Edison and San Diego Gas & Electric to give up their power lines in exchange for state help in bailing the utilities out of debt. Supporters say state ownership of power lines would give California more clout in dealing with the Federal Energy Regulatory Commission and would provide the state with an estimated $1.4 billion a year in fees collected from grid users. The transmission grid refers to the 32,000-mile network of power lines that supply California's electricity. Its total value has been estimated between $7.5 billion and $9 billion. On Monday, Davis said that talks were continuing with SDG&E and that the state may ask a federal bankruptcy court to relinquish PG&E's part of the grid to the state. "One way or the other, we hope to be able to get all three lines," Davis said. Some legal experts, however, say Davis is taking a big gamble. In a bankruptcy proceeding, any transfer of lines would have to be approved by a judge and by PG&E's creditors, who, in this case, include some of the state's biggest power generators. "It would have to be done through a plan of reorganization that the creditors would have to agree to," said David Wiggs, an energy consultant who has been advising Assembly lawmakers. "Now you have a whole other group that has to agree." Gary Ackerman, head of the Western Power Trading Forum, said generators aren't convinced Davis can take title to Edison's portion of the grid, much less one from PG&E. "Given this administration's sterling record for putting together deals, I am not sure this one will work any more than the others," Ackerman said. Another option is for the state to use its power of eminent domain to take over the PG&E grid. But such a move could trigger years of lawsuits and squabbles, analysts say. "In the end, they may have to pay the debtors or the utilities a whole lot more than book value," said Rich Ferguson, an adviser for the Sierra Club, which once supported the idea of a grid takeover. Now, Ferguson said, environmentalists are more worried about the utility selling off its vast hydroelectric plants and land holdings in the Sierra. "The state has to protect the hydroelectric assets," Ferguson said. "The idea of giving commercial control over the water and power in that system is so scary that people don't even want to think about it." Steve Maviglio, a spokesman for the governor, said Davis shares such concerns but is trying to salvage the best of a bad situation. "PG&E put themselves in some very uncharted waters so we will have to see where this leads," he said. Others fear the state could emerge from a summer of blackouts with higher rates and only part of a hot dog. It's an unappetizing prospect, said Harvey Rosenfield of the Foundation for Taxpayers and Consumers Rights. "Buying two out of three transmission systems is like buying a car with three out of four wheels," Rosenfield said. "There is no point in it." The Bee's Stuart Leavenworth can be reached at (916) 321-1185 or sleavenworth@sacbee.com. Bee Staff Writers Emily Bazar and Carrie Peyton contributed to this report. ------------------------------------------------------------------------------ ------------------------ PG&E clashes with regulators in court session By Carrie Peyton Bee Staff Writer (Published April 10, 2001) Electricity regulators and California's largest utility clashed in Bankruptcy Court on Monday in what a state lawyer warned is the first move of a plan to wrest control of electric rates from the state's hands. And in continuing fallout from Pacific Gas and Electric Co.'s filing for bankruptcy protection Friday, PG&E is notifying counties statewide that it will pay them just under half of the property tax funds they were expecting to receive today. The flare-up in federal Bankruptcy Court in San Francisco on Monday morning revolved around a technical issue -- how much time PG&E needs to give revised accounting documents to regulators at the state Public Utilities Commission. But by asking Judge Dennis Montali to order regulators to wait, PG&E is dragging the judge into an area he doesn't belong, said Gary Cohen, the lawyer for the PUC, which regulates electric rates. "This is the first volley in PG&E's legal strategy, which is to try to get the bankruptcy judge to subvert the PUC's regulatory authority," Cohen said after the hearing. "It isn't true; it isn't what happened today," said PG&E spokesman John Nelson. He said PG&E really just needs more time -- for now. Montali isn't expected to rule immediately on the accounting issue, which could be just one avenue PG&E might use to make a legal case for higher electric rates. Power sellers have said they hope Montali will ultimately order or pressure regulators to raise rates, and some bankruptcy experts say boosting rates, at least temporarily, could be within the court's power. It is "too early to speculate" on whether PG&E plans to ask the judge to raise rates or to undo any PUC decisions, Nelson said. The court also will be deeply involved in any ongoing payments by PG&E, which has short-circuited revenue flowing to dozens of California counties. The utility owed $79 million to California counties for its Jan. 1-June 30 property taxes, but it will pay only $37 million, covering the period from April 6 onward, Nelson said. That's because it needs court permission to pay any bills for the period just prior to its bankruptcy filing. PG&E plans to ask the court to let it pay counties the rest of the money. The Bee's Carrie Peyton can be reached at (916) 321-1086 or cpeyton@sacbee.com. ------------------------------------------------------------------------------ --------------------------------------------- Judge blasts FERC, renounces power dispute By Denny Walsh Bee Staff Writer (Published April 10, 2001) A Sacramento federal judge Monday bowed out of the bitter financial dispute between energy generators and their California buyers but not before he leveled a blast at the performance of federal regulators. Political party Here are the annual salaries of state officeholders before the California Citizens Compensation Commission was formed in 1990 and at present. Governor 1990: $85,000 Current: $175,000 % increase: 106% Lt. Governor 1990: $72,500 Current: $131,250 % increase: 81% Attorney General 1990: $77,500 Current: $148,750 % increase: 92% Controller 1990: $72,500 Current: $140,000 % increase: 93% Treasurer 1990: $72,500 Current: $140,000 % increase: 93% Sec. of State 1990: $72,500 Current: $131,250 % increase: 81% Supt. of Public Instruction 1990: $72,500 Current: $148,750 % increase: 105% Insurance Commissioner 1990: $95,052 Current: $140,000 % increase: 47% Bd. of Equalization 1990: $95,052 Current: $131,250 % increase: 38% Legislator 1990: $40,816 Current: $99,000 % increase: 143% Assembly Speaker 1990: $40,816 Current: $113,850 % increase: 179% Senate President 1990: $40,816 Current: $113,850 % increase: 179% Source: California Citizens Compensation Commission. Percentages are rounded. The blistering remarks came as Gov. Gray Davis' spokesman, Steve Maviglio, said the federal government stance could add $5 million to $8 million more a day to the state's power purchases for its two largest utilities this summer. The cost will rise substantially during periods of high demand in summer unless the state fights rulings last week by a federal appeals court and the Federal Energy Regulatory Commission, Maviglio said, adding that no decisions have been made on appeals. U.S. District Judge Frank C. Damrell Jr. canceled Thursday's hearing on a motion by the state's transmission grid operator to amend its lawsuit against one of the nation's major energy suppliers. Citing Friday's ruling by FERC that cash-strapped buyers of emergency power must be able to pay for it, no matter how dire California's energy crisis becomes, Damrell said in a short but stinging order that further action in his court would be "futile." The 9th U.S. Circuit Court of Appeals, hinting at jurisdictional problems, stayed Damrell's injunction forcing Reliant Energy Services to sell emergency power to the Independent System Operator. The ISO then sought to convert its suit to breach-of-contract litigation in an attempt to overcome the appellate court's concerns. As he backed out of the brawl Monday, Damrell accused FERC of dragging its feet and talking out of both sides of its mouth. Meanwhile, the state Department of Water Resources, which has been acquiring energy since Jan. 19 with the backing of legislative appropriations, is "buying the power necessary to keep the lights on," said Ray Hart, the department's deputy director. And three top state lawmakers will travel to Boise, Idaho, today to attend a FERC hearing on price volatility in the West. They will ask the commissioners to impose a temporary price cap on wholesale electricity in Western states. In a March 21 injunction, Damrell ordered Reliant to continue selling emergency power to ISO, even though it would not be paid for purchases on behalf of Pacific Gas and Electric Co., which has filed for bankruptcy protection, and Southern California Edison Co., also heavily in debt. Reliant said its agreement with the ISO requires buyers to be creditworthy and sought to back away from the two investor-owned utilities. The ISO sued to halt the retreat of the Houston-based firm along with other generators. FERC issued an order Feb. 14 generally siding with generators on the creditworthiness question. FERC on Friday said the ISO "misinterpreted our order." It "required a creditworthy counterparty, such as the California Department of Water Resources." That did not please Damrell. In his Monday order, the judge wrote that FERC said Feb. 14 it would address the creditworthiness question as it applies to emergency purchases in the future. "The FERC explicitly acknowledged this fact five days ago in a brief" submitted to the 9th Circuit challenging the March 21 injunction, he said. The judge said it was FERC's own words in the Feb. 14 order that he relied on in issuing an injunction pending the agency's decision on creditworthiness. The Bee's Denny Walsh can be reached at (916) 321-1189 or dwalsh@sacbee.com. Bee Staff Writer Carrie Peyton and the Associated Press contributed to this report. ------------------------------------------------------------------------------ --------------------------------------------- Dan Walters: Lots of words, but is the crisis finally coming to a climax? (Published April 10, 2001) Last Thursday, Gov. Gray Davis abandoned his oft-voiced, albeit unrealistic, "hope and expectation" that consumers' electric utility rates would not rise sharply to cope with soaring wholesale power costs, backing a hefty boost in rates he said would provide utilities with enough revenue to avoid bankruptcy. A day later, the state's largest utility, Pacific Gas and Electric Co., thumbed its nose at Davis by filing for Chapter 11 bankruptcy protection, with PG&E executives blaming Davis and other state politicians for prolonging a financial drain on the company. Davis immediately denounced PG&E's action, saying the venerable company "has dishonored itself," and declared that his negotiations with the smaller but similarly distressed Southern California Edison on a state buyout of the intercity transmission system would continue. Over the weekend, as Davis and his aides conducted nearly round-the-clock talks with Edison executives, he and PG&E traded sharp barbs over who was to blame for bankruptcy. "PG&E management is suffering from two afflictions: denial and greed," the governor declared in a statement Saturday, followed by an equally testy response from PG&E. The utility said that "instead of focusing all his attention on solving the state's yearlong and ever-worsening energy crisis, the governor has launched a campaign-style attack on our company." On Monday, Davis and Edison Chairman John Bryson -- a former colleague from the Jerry Brown administration two decades ago -- announced agreement on a deal for the state to acquire Edison's share of the power transmission grid for $2.76 billion and obtain low-cost power from the utility for the next 10 years. Net proceeds of the sale, about $1.5 billion, would be used to reduce Edison's $5 billion debt, with the rest being covered by bonds, to be repaid from a share of the utility rate hike Davis now supports. Davis continued his sniping at PG&E, albeit indirectly. "This is a clear example of the good that can come when parties are responsible, resolute and remain at the bargaining table," Davis said -- adding that PG&E could have a similar deal if it wants. But PG&E, whose debt is half-again as large as SCE's, has declared it doesn't want to sell its share of the grid. That's five days of fairly intense activity. And the flurry may indicate that the state's lengthy crisis involving electric supplies that fall short of demand, escalating wholesale and retail power prices and the shaky financial health of the state's utilities may be coming to a climactic point. But are matters really improving, as Davis insists, or are there more curves and bumps ahead? And will the road lead to some sort of crash-and-burn conclusion? The harsh truth is that no one knows for certain, and that includes Davis. Not only is this energy crisis an unprecedented event, but it's one that has been stubbornly resistant to the sort of give-and-take, something-for-everyone approach that politicians instinctively favor. It's part politics, part economics, part technology and part psychology -- a volatile mixture whose exact composition changes constantly. And no one knows what role the bankruptcy judge will play in setting rates or compelling PG&E to reopen negotiations on the sale of its share of the grid. Even the steps that Davis hails as positive, such as state acquisition of the power grid, could turn negative. Is the state capable of owning and operating, even indirectly, such a thing? Will the much-needed expansion of the system now become another bit of political pork? And what happens if, as Davis now wants, the state moves even more deeply into the power business by building and operating generating plants? Will rates be manipulated for political purposes? It's well known that Davis' pollsters have been testing voters' tolerance of rate boosts. This is a wild ride, and no one -- absolutely no one -- knows where it will end. The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.com . ------------------------------------------------------------------------------ ------------------------ Davis closes in on deal for Edison's lines But several hurdles still stand in the way By Ed Mendel UNION-TRIBUNE STAFF WRITER April 10, 2001 SACRAMENTO -- Gov. Gray Davis, scrambling to save his utility rescue plan, announced a $2.76 billion agreement yesterday for the state to purchase Southern California Edison's transmission system. The long-delayed acquisition is what Davis wants in exchange for helping Edison pay off its huge debt. But the deal is far from done. Assembly Republicans are threatening to block the purchase in the Legislature, approval by federal regulators is uncertain, and disputes could arise as details of the agreement are worked out. White House urges energy spending cuts Continuing coverage: California's Power Crisis ? Negotiators worked through the weekend to swiftly complete a memorandum of understanding after Pacific Gas and Electric surprised Davis by filing for bankruptcy Friday, a day after the governor made a statewide televised address to report progress on the rescue plan. Davis praised Edison for being concerned about "the fate of the consumers they serve" and criticized PG&E for acting "arrogantly and selfishly." He said the Edison offer is available to PG&E if it returns to the bargaining table. But PG&E, without elaborating, issued a statement saying that it must deal with a different "set of facts" than Edison and continues "to believe that a Chapter 11 reorganization is the most feasible means to reach a solution." A U.S. bankruptcy judge in San Francisco, Dennis Montali, began work on the PG&E bankruptcy yesterday. He ruled that PG&E's assets can continue to be used to back the purchase of natural gas. Edison Chairman John Bryson, joining Davis at a news conference in Los Angeles, said his utility believes that a negotiated resolution of the issues is "far preferable" to bankruptcy. "It serves the state," Bryson said. "It serves our customers. It serves our employees and our companies to achieve a practical resolution." Davis said the administration would resume negotiating for the purchase of the transmission system of San Diego Gas & Electric. He said he is optimistic because SDG&E has agreed "in principle" to sell its transmission system. SDG&E said in a statement that it was "very encouraged" by the Edison agreement and looked forward to continuing negotiations with the Davis administration. Under the governor's rescue plan, the transmission system is the main thing that the utilities give the state in exchange for aid in paying off the massive debts that drove PG&E and Edison to the brink of bankruptcy. The rates they charge customers were frozen under deregulation as the price of wholesale power soared, producing a combined debt of $13 billion. The state was forced to begin buying power for utility customers in mid-January when generators refused to extend further credit to the utilities. It has spent more than $4 billion so far. The governor's plan would give the utilities part of the revenue from the monthly bill paid by their customers -- a "dedicated rate component" -- that could be used to finance bonds that would pay off the utility debt. Davis has said that state ownership of the transmission system would allow improvements of bottlenecks that led to blackouts last year. The governor said yesterday that if there are purchase agreements with two of the utilities, the bankruptcy judge might be persuaded to allow the sale of PG&E's transmission system or to permit private mediation. "One way or the other we hope to get all three lines," Davis said. But there is a fallback position. If the transmission purchase does not occur within two years, the state could make up the shortfall by buying Edison's hydroelectric power plants and obtaining low-cost power. The governor has previously said there is a question about whether the state purchase of utility transmission systems would be approved by the Federal Energy Regulatory Commission. Republicans, who must provide at least five votes for the purchase of a transmission system to pass the Assembly, oppose the plan and have suggested that the utility parent firms pay off the debt. "I think the governor will be hard-pressed to find the votes he needs in the Assembly to complete the Southern California Edison bailout," said Assembly GOP Leader Dave Cox of Fair Oaks. Senate President Pro Tempore John Burton, D-San Francisco, said he is concerned that a "dedicated rate component" may cause ratepayers to pay off utility debt that resulted from price gouging, stock buybacks, executive bonuses and transfers to the parent companies. "There is a question of whether ratepayers should have to gargle that," said Burton, who promised in-depth legislative hearings on the Edison agreement. Edison officials say they have a debt of $5.5 billion from the "undercollection" on power costs, some of which is owed to the generating branch of Edison. The state purchase price of $2.76 billion is 2.3 times the book value of the transmission system. Edison said it will pay off its debt with money from the transmission sale and a $2 billion bond backed by its share of the ratepayer's monthly bill. The state expects to recover the purchase cost from the current transmission fees on monthly ratepayer bills. Edison would continue to operate the system under a contract with the state. The deal announced by Davis yesterday added some of the details to an agreement "in principle" to buy the Edison transmission system announced Feb. 23. Davis said then he hoped to finish the agreement in a week. One of the things that caused PG&E to file for bankruptcy, its executives said Friday, is that the Davis administration did not negotiate with them for more than three weeks while trying to wrap up the Edison deal. The complex Edison agreement requires the utility to provide low-cost power to the state from its remaining regulated generators for 10 years and to drop a lawsuit seeking a rate hike to pay off its debt. Edison also agreed to give the state low-cost power from its new unregulated Sunrise power plant for 10 years. If the plant is not operating by Aug. 15, Edison will pay a $2 million penalty. The Edison parent firm will give the utility $400 million, returning a tax refund that the utility transferred to the parent firm. Edison agreed to spend $3 billion over five years to improve its distribution system, the local lines and equipment retained after sale of the long-distance transmission system. A rate increase to pay for the work may be proposed in 2003. The goal of the governor's plan is to get the utilities back into the power-buying business by the end of next year, freeing the state from the burden it assumed nearly three months ago. The state general fund, which has been paying for the power, is expected to be repaid by a bond of perhaps $12 billion or more that would be paid off by ratepayers over a dozen years. But as the state spends $1.5 billion a month to buy power, with the fear that spending will accelerate this summer, some are concerned that the PG&E bankruptcy may delay or halt the bond, causing funding cuts in other programs. The chairman of the Federal Energy Regulatory Commission, Curt Hebert Jr., said again yesterday that the Bush administration does not want to impose federal caps on wholesale power, something sought by Davis since last fall. Assembly Speaker Robert Hertzberg, D-Van Nuys, plans to lead a legislative delegation to a FERC hearing in Boise, Idaho, today to make another plea for caps on wholesale power prices. Davis said that California, which has not built a major new power plant in a dozen years, will continue to have power shortages until about a dozen new plants are operating. "We will have capacity exceeding demand by some time in mid to late 2003," said Davis. "But to help us get there without blackouts, we are going to need a lot of conservation on the part of consumers and business." Staff writer Dean Calbreath, Copley News Service reporter Matt Krasnowski and wire services contributed to this report. ------------------------------------------------------------------------------ ---------------- White House urges energy spending cuts By Toby Eckert COPLEY NEWS SERVICE April 10, 2001 WASHINGTON -- Despite dire warnings of a new energy crisis, the Bush administration yesterday proposed slashing federal spending on conservation programs and renewable energy. Energy Secretary Spencer Abraham defended the proposal, saying the targeted programs were not producing enough benefits and that the administration wanted to bolster more successful initiatives, like home weatherization. Energy conservation groups said the cuts would gut programs that are saving billions of dollars a year in energy costs and would worsen the very power shortages Abraham and President Bush have been warning the country about. The administration also reportedly is weighing whether to delay or roll back new energy-efficiency standards for air conditioners and other appliances. Experts have said conservation efforts are a key to lessening the blackouts that are expected to hit California this summer, and state officials have urged residents to cut power use. The detailed budget blueprint for fiscal year 2002 that Bush submitted to Congress would cut federal energy efficiency and renewable energy programs by more than $200 million from current levels. Some of the programs affected include solar and wind-power development and efforts to cut energy consumption at commercial and government buildings. "We decided that it made little sense to continue forward with programs that had not helped us avert the energy crisis we confronted," Abraham said in unveiling the Energy Department budget. "Instead of spending a huge amount of additional taxpayer money in areas we did not see as being highly productive at this point, we thought it made sense to step back." Critics said Abraham was understating the benefits of the programs to further the Bush administration's strategy of expanding development and use of fossil fuels such as oil, gas and coal. They also suggested the programs were being sacrificed to make way for Bush's proposed $1.6 trillion tax cut. "It is bald-faced hypocrisy to argue that we are worried about an energy crisis and to cut the programs that have had the single biggest effect on reducing energy consumption," said Hal Harvey, president of The Energy Foundation, a San Francisco-based group that promotes alternative energy sources and conservation. The Alliance to Save Energy estimated that the targeted programs cut energy costs by more than $25 billion a year. Abraham said the administration was "absolutely committed" to conservation and efficiency measures and that they would "play a key role" as a White House task force devises a national energy policy. He characterized the proposed cuts as "a transitional step that gives us the opportunity to come back in future budgets with a new set of priorities that will help us to overcome the energy crisis we face." The administration has proposed boosting alternative energy programs by $1.2 billion beginning in 2004 -- but only if Congress approves oil and natural gas drilling in Alaska's Arctic National Wildlife Refuge. There is strong opposition to that in Congress. Abraham touted the administration's proposal to increase funding for a grant program to make homes more energy efficient. The program would grow by $120 million next year and by $1.4 billion over 10 years under Bush's plan. The administration also has proposed extending tax credits for wind and solar power projects, increasing research into energy derived from organic biomass material by $30 million and spending $150 million on a new clean-coal technology program. Just as Bush has in the past, Abraham cautioned that there are no quick fixes to the nation's energy woes. He also defended the administration's response to the crisis in California, saying the problem had festered under the Clinton administration. "In the one month in which a Bush-appointed chairman was in charge of (the Federal Energy Regulatory Commission), they began making refunds," Abraham said, referring to FERC's threat to order power providers to repay California utilities for alleged overcharges. California officials say FERC consistently has underestimated the amount that should be refunded and that it has taken far too long to act. ------------------------------------------------------------------------------ ------------- Davis Arranges to Buy Edison's Share of Grid Power: State would pay $2.76 billion and let the company recover from some of its debt. By DAN MORAIN and ROBIN FIELDS, Times Staff Writers ?????SACRAMENTO--Gov. Gray Davis announced a deal Monday to buy Southern California Edison's transmission lines for $2.76 billion, and to allow Edison to recoup part of its multibillion-dollar debt from consumers. ?????With Edison International Chairman John Bryson at his side, Davis announced what he called a historic agreement with the near-bankrupt utility, and vowed to press ahead with negotiations to buy San Diego Gas & Electric's share of the transmission system. ?????Coming on the first business day after Pacific Gas & Electric filed for bankruptcy, the deal's significance was clouded by the difficulty of extending its provision to the state's largest utility, whose finances will now be untangled in court. Without acquiring PG&E's share of the transmission grid, experts said the purchase would be of little practical value to the state. Still, the deal represented a victory for Davis and Edison in their efforts to avoid another bankruptcy, and the troubled utility's stock jumped as much as 40% on the news. ?????Davis renewed his attack on PG&E as the bankruptcy proceeding officially opened, saying it acted "arrogantly and selfishly" by filing for bankruptcy. ?????He went out of his way to praise Edison: "We have come to terms with a utility that was on the verge of bankruptcy, because they are people of goodwill and are concerned about the fate of the consumers they serve, and they stayed at the bargaining table." ?????Calling the deal preferable to bankruptcy, Bryson said: "It serves the state, it serves our consumers, it serves our employees and our companies to achieve a practical resolution." ?????The deal is far from done. The Legislature and the California Public Utilities Commission must approve major parts of it. Senate President Pro Tem John Burton (D-San Francisco) said he intends to hold "complete hearings, and then some." ?????"We have to take a very thorough, careful, detailed look at it," Burton said Monday. ?????Assembly Speaker Bob Hertzberg (D-Sherman Oaks) said in a statement that he had not seen any details, "including the costs to the state." Lawmakers will begin work promptly on legislation to implement the deal, he said. ?????Consumer advocates were not enamored of the deal. ?????"It's hard to imagine that PG&E would walk away from a deal like this because it seems to give Edison everything they want," said attorney Mike Florio of the Utility Reform Network, a consumer group in San Francisco. ?????In what probably will be the most controversial element, Davis agreed to allow Edison to recover at least part of its debt--$3.5 billion--from consumers. The company would use part of ratepayers' money to back the sale of bonds to investors, taking the proceeds to refinance its debt. ?????To sell bonds, the utility must be able to assure investors that it has a dedicated source of revenue from ratepayers' bills earmarked to repay the principal and interest on the bonds. ?????Davis was not specific about whether the so-called dedicated rate component would require a rate hike beyond what amounts to the 37% increase the governor is advocating, or the roughly 40% boost that the PUC approved last month. ?????However, the Legislature would have to approve the provision, and Burton said it could result in a rate hike. Burton added that he opposes a dedicated rate component, noting that Edison's debt might have occurred because of illegal actions by independent generators that have been charging record wholesale prices for electricity. ?????"This deal by our panic-stricken governor is going to raise rates enormously," said Santa Monica consumer advocate Harvey Rosenfield, who is expected to promote an initiative to block the agreement. "He acted to protect his political career at the public's expense. It is a desperate attempt by the governor to redeem his credibility with Wall Street." ?????Davis, clearly stung by PG&E's decision to file for bankruptcy, told his negotiators to jump-start talks with Edison and to work through the weekend to resolve differences. ?????Davis and Bryson met for 4 hours Friday, and teams of lawyers worked through the weekend until 5 a.m. Monday to craft the deal, Davis said. Edison's board of directors ground through the fine print for 5 hours Monday before giving its stamp of approval. ?????Also as part of the deal, Edison's parent company agreed to pay back approximately $420 million to the utility. Also, Edison will withdraw all pending lawsuits seeking to recoup losses by the imposition of higher rates. ?????Bryson appeared hollow-eyed with fatigue as Monday's deal was announced, reflecting strain of negotiations. ?????In the centerpiece of the deal, Davis agreed to buy Edison's transmission lines for $2.76 billion. Edison would use proceeds from the sale to refinance its debt, which it estimates to be $5.5 billion. ?????Additionally, the state would receive conservation easements to roughly 20,000 acres of Edison land in the Sierra, assuring that the wilderness areas would not be developed. ?????Edison also agreed to sell power at cost from its plants in California for 10 years, including electricity from a plant called Sunrise being built in Kern County. ?????The governor's announcement raised many questions--not the least of which is the wisdom of owning only a part of the 32,000-mile transmission system. Davis himself said Feb. 23 that it makes little sense for the state to buy only Edison's share of the grid. ?????With PG&E in bankruptcy court, chances are slim that the state will be able to take over its share of the transmission grid. Without the entire grid, the public benefits are questionable. ?????"It's like buying a car with three wheels," Rosenfield said. ?????Davis said his negotiators will turn their attention to striking a deal with San Diego Gas & Electric. San Diego's situation is far different from Edison's or PG&E's. The utility's debt is about $680 million--far less than the combined debt of more than $13 billion claimed by PG&E and Edison. ?????"We have been negotiating on good faith with the governor for several weeks now, and we will continue that process," said Art Larson, spokesman for Sempra Energy, parent of San Diego Gas & Electric. ?????Davis said that after he has deals with Edison and San Diego, he hopes to ask the Bankruptcy Court to allow the state to buy PG&E's portion of the grid. He also held out hope that PG&E might agree to negotiate with the state--even though PG&E executives say that one of the reasons they filed for bankruptcy was that the state had gone three weeks without meeting with them. ?????"Even though PG&E acted arrogantly and selfishly--they walked away from the bargaining table--if they come back, we are certainly willing to submit this offer to them as well," Davis said. ?????PG&E spokesman John Nelson replied: "We are proceeding under the direction of a federal bankruptcy judge." ?????Davis says that after the state owns the transmission lines, itwill improve the long-neglected system to make the distribution of power more efficient. The cost of overhauling the system has been placed at $1 billion. ?????The state also may be able to exercise some control over prices for electricity charged by generators--though the Federal Energy Regulatory Commission, which must approve the sale, likely would oppose such state action. ?????Investors cheered Edison's deal with the state on grounds that it would pull the utility further from the precipice of bankruptcy--whether filed voluntarily or by creditors unwilling to trust a bureaucratic solution. ?????"This absolutely helps Southern California Edison prevent an involuntary bankruptcy," said Paul Fremont, an analyst with Jefferies & Co. in New York. "Depending on the details, it makes them viable." ?????Edison's stock, which gained 67 cents to $8.92 a share in regular trading Monday, soared another 40% after hours to a high of $12.50 a share after the deal was announced. PG&E's stock, meanwhile, fell 30 cents to $6.90 a share. ?????Most analysts deemed the purchase of Edison's transmission system more valuable for the state strategically than practically; without PG&E's holdings, the state cannot achieve the control over delivery it had sought, they agreed. ?????But the deal means Davis and California lawmakers will retain a role in resolving the power crisis, rather than being preempted by court proceedings. ?????"If both of them had said it's futile, we can't deal with the state; we'd rather go to court, it would speak loudly," said Douglas Christopher, an analyst at Crowell, Weedon & Co. "The governor had to come back, and with the kind of details that were missing from his speech." ?????Edison's agreement to the deal does not necessarily mean it will avoid bankruptcy. Gary Ackerman, who represents power producers and marketers as the executive director of the Western Power Trading Forum, said creditors still could force Edison into bankruptcy. ?????"Creditors will be motivated to push Edison into bankruptcy sooner," Ackerman predicted. "We don't see this as being 100 cents on the dollar, because the amount of money for the transmission system is not enough to pay for Edison's debt." --- ?????Morain reported from Sacramento and Fields from Los Angeles. Times staff writers Miguel Bustillo, Nancy Vogel and Julie Tamaki in Sacramento and Nancy Cleeland in Los Angeles contributed to this story. ------------------------------------------------------------------------------ -------------------------------------------- PG&E Bankruptcy Case Opens in Tense, Packed Federal Courtroom Hearing: Reorganization gets underway as routine motions are made, and judge approves utility to pay many of its bills. By MAURA DOLAN, Times Staff Writer ?????SAN FRANCISCO--In the opening of the largest utility bankruptcy case in U.S. history, dozens of high-priced lawyers squeezed into a packed courtroom Monday to have a say in how Pacific Gas & Electric Co. will be allowed to spend its cash. ?????Attorneys for gas suppliers told U.S. Bankruptcy Judge Dennis Montali that they are worried that PG&E might not pay their gas bills, which run into the tens of millions of dollars. Montali, who had read all the legal documents before the hearing, pointedly advised lawyers for PG&E to spiff up their legal briefs and get their court citations right. ?????As Montali addressed a PG&E lawyer, a consumer activist marched uninvited to the court podium to read the judge a letter. Montali told her to sit down. ?????Although the motions before the court were relatively routine--Montali approved temporary orders that allow PG&E to pay many of its bills--the atmosphere was tense as the high-stakes bankruptcy reorganization got underway. ?????PG&E asked the bankruptcy judge for an injunction against accounting changes ordered March 27 by the Public Utilities Commission. The utility said the changes prevented a customer rate freeze from being lifted. The skirmish, scheduled to be heard on April 18, represents the utility's first attempt to get higher electricity rates through the bankruptcy proceeding, attorneys said. ?????In the coming months, the huge, complicated case will bring hundreds of seasoned lawyers together as they try to restructure the finances of a company that is more than $9 billion in debt. ?????Consumers are watching closely to see whether Montali allows PG&E to raise electricity rates, which state regulators have already increased by as much as 46% for some customers. The state has predicted more blackouts, and gas charges have spiraled upward for months. ?????Monday's hearing was held in the federal Bankruptcy Court, blocks from the federal courthouse, on a top floor of a high-rise in the city's busy financial district. ?????Lawyers for a variety of creditors were led into the courtroom first and filled the front rows. Activists filled the rear and seats in the jury box. ?????Even without the seating plan, it was easy to tell who was who. The activists, many of them women, were distinctly less formal than the lawyers and appeared less impressed by the proceedings. Some of them glared at the lawyers. ?????The hearing began when Montali heard from an East Coast attorney, who spoke by telephone to the courtroom representing Bank of New York for PG&E bondholders, who are owed more than $2.2 billion. ?????The proceeding on the emergency motions was intended to allow PG&E to pay its suppliers and other creditors without interruption. The judge will make a final decision on the motions May 9, a day after the first major court session of PG&E's creditors. ?????Early in a bankruptcy proceeding, it is rare for a judge not to allow the debtor to spend cash that is pledged to others as collateral. It is usually the only way for the company to continue operating. But as the case wears on, the standards for allowing expenditures become increasingly stringent, lawyers said. ?????PG&E attorney James L. Lopes, speaking in court, sought to reassure the public and creditors of the utility's good faith. ?????He said PG&E believes the state PUC erred in calculating how much the utility must pay the state for the electricity it is buying for customers. ?????Lopes added that PG&E continues to make payments because "it's very important to the state and their ongoing procurement of power." However, he said the utility reserves the right to challenge the formula for the payments at a later date. ?????The attorney also stressed that gas suppliers will be paid because the utility can pass on to consumers higher gas prices. Only electrical prices are capped. He said the utility is confident of a steady supply of gas for the next several months. ?????"There isn't going to be a default," he insisted. ?????Montali said that PG&E's "sanguine" reassurances may not be enough to comfort creditors and told the utility lawyer that he expected PG&E to provide many more specific numbers about its financial affairs. However, he approved a temporary order allowing the utility to pay its gas suppliers. ?????Adam A. Lewis, a lawyer for a gas supplier, underscored the concern of creditors when he talked about the enormous sums involved. ?????Lewis, who represents El Paso Merchant Energy, said its bill to PG&E just for March and part of April was $50 million. The monthly payment before that was $60 million, he said. ?????Considering the staggering amounts, "it doesn't take very long for something to go drastically wrong," Lewis said. ?????Montali, addressing these concerns, made it clear that he cannot single-handedly solve the energy crisis. "I have no control" over the future price of gas, he said. ?????Elsewhere on Monday, PG&E announced it would pay only half the nearly $80 million in utility property taxes due today to 49 California counties. A PG&E spokesman said bankruptcy laws allow the utility to pay only for the period following its bankruptcy filing and that the utility will ask the court in a few days for permission to pay the rest of its bill. ?????One of the nation's major debt-rating agencies, Standard & Poor's Corp., lowered its rating Monday on PG&E's unsecured debt--money owed that is not secured by any collateral--to "default" status. Another major debt-rating company, Moody's Investors Service, took no immediate action as a result of the bankruptcy filing. ?????Monday's court hearing attracted many lawyers curious about Montali's debut as the ringmaster of the gigantic case and to see who was representing other parties in the case. ?????"People were really there to do the talking in the hallways," one lawyer said later. ?????Montali, a former bankruptcy lawyer appointed to the bench in 1993, was extremely active during the hearing, peppering lawyers with comments and questions. ?????When he complained of ambiguities in PG&E's legal documents, he prefaced his remarks by saying he did not mean to criticize. He said he understood the time pressures the lawyers were under. ?????Asking for clarification of some numbers, Montali told PG&E's Lopes: "That is something to put on your short to-do list." Montali added to that list as the hearing wore on for more than an hour. ?????The judge also expressed weariness with PG&E's recitation of the history of the crisis in legal document after legal document. Could the lawyers indicate that background in italics or something "so the poor judge doesn't have to read it 175 times?" Montali asked. ?????"Your Honor," Lopes replied, "I am getting tired of reading it as well." ?????At one point, a cell phone rang in the courtroom. Montali sternly announced that it would be removed if it rang again. ?????Lopes quickly bent down and began to rummage in his briefcase. "You scared me," he said, confessing he could not remember whether he had turned off his phone. ?????He had. "It's off," he said, relieved. ?????Without missing a beat, Montali told his clerk: "Get me Jim Lopes on the phone." ?????For many of the spectators, being in the courtroom was like being in a foreign country. The judge and lawyers spoke in bankruptcy jargon that consumer activists later complained they could not understand. ?????When Montali noted that he might move the case to a larger courtroom to accommodate the crowds, Lopes said the numbers would fall off once people see "how boring these hearings are." ?????Just as Montali and Lopes began to discuss future hearing dates, consumer activist Medea Benjamin jumped from her seat and strode over to the podium to address the judge. ?????"You interrupted me," Montali admonished her. "Now go back and sit down, and I'll let you make a statement in a minute." ?????When he allowed her to speak later, she asked whether there was some way consumers could be briefed about what was happening at the hearing because it was "a little bit above our heads." ?????"Yes," Montali said. "Hire a bankruptcy lawyer." ?????Benjamin, of the Coalition for Public Power Now, then read her letter. She begged Montali not to raise utility rates and urged him to force PG&E's parent company to assume the financial burden. ?????"We have great faith in you," she concluded. "Please don't let us down." --- ?????Times staff writers James Peltz and Tim Reiterman contributed to this story. ------------------------------------------------------------------------------ --------------------------------------------- Oil Official Urges Eased Restrictions on Industry Environment: Geologist advocates resuming offshore drilling and providing tax breaks in response to energy crisis. By KENNETH REICH, Times Staff Writer ?????A call for relaxation of environmental laws, an end to moratoriums on offshore oil drilling and more favorable tax treatment for oil and gas drillers was made Monday by an industry geologist at a meeting of scientists and petroleum engineers in Universal City. ?????G. Warfield Hobbs, a divisional president of the 30,000-member American Assn. of Petroleum Geologists, said it is high time the public and Congress recognize facts in the energy crisis. ?????"You can talk until you're blue in the face," Hobbs said. "They don't want to hear it. . . . How do we get the public's attention?" ?????Citing statistics provided by the U.S. Energy Information Agency, Hobbs told a joint luncheon of his group and the Geological Society of America that energy demand in the United States has grown by 20% since 1979, but domestic supply has increased by only 4.3%. ?????In the next 20 years, the agency's projections show, overall energy consumption will increase by 32%, petroleum demand by 62%, natural gas demand by 45%, coal demand by 22% and electricity demand by 45%, Hobbs said. ?????"Despite a 37% increase in energy efficiency, crude oil imports will increase 40% by 2020 to a total 64% of domestic supply," he said, even if curbs on domestic reduction are eased. ?????Suggestions for Increasing Production ?????Accordingly, Hobbs urged: ?????* Clearing the way for drilling off the East and West coasts and in the Gulf of Mexico, which he said could add 46 billion barrels of oil to the nation's officially projected 110 billion in onshore reserves and 268 trillion cubic feet of gas to the projected onshore 1,074 trillion. ?????* Amending the Federal Antiquities Act to "prevent its misuse in restricting access to public lands." The act protects some fossils and authorizes the president to set aside land for national monuments without going to Congress. ?????* Reforming the Clean Water Act and the Endangered Species Act, especially sections pertaining to wetlands. This would not lessen protections for "caribou and grizzly bears," he said, but would "stop searches for the black-tailed ferret two counties from where it is known to exist," and "stop protecting each separate subspecies of salamander." ?????* Restricting the federal Environmental Protection Agency's ability to regulate drilling muds as hazardous wastes. These have been implemented as additional protections from drilling excesses. ?????* Reducing taxes for the oil and gas industries by such changes as restoring the write-off of intangible drilling costs for passive investors, eliminating the "onerous alternative minimum tax" and raising depletion allowance provisions to previously high levels. ?????* Opening portions of the Arctic National Wildlife Refuge to oil drilling as President Bush has urged. Hobbs argued that most of the land to actually be used for drilling is swampland, not caribou grazing territory. ?????"We must assure the public that we have the energy resources to meet the demand and that these resources can indeed be developed in a responsible manner in environmentally sensitive areas of the Rocky Mountains, the north slope of Alaska, the eastern Gulf of Mexico and the Pacific and Atlantic outer continental shelf," Hobbs said. ?????A resident of Connecticut, he said, "I frankly don't want oil washing up on my family's beach, but I'm prepared to take that risk to help resolve the nation's energy problems." ------------------------------------------------------------------------------ ----------------------------------------------- Tuesday, April 10, 2001 Give Power Buyers a Club in Cartel Wars By MICHAEL SHAMES, PETER NAVARRO ?????Last week, Gov. Gray Davis proclaimed that conservation and new energy supplies will allow California to make it through this summer without additional rate increases. On Monday, he announced a "sweetheart deal" to save one of the state's largest utilities even as the other slunk behind the protection of a bankruptcy court. ?????In fact, none of these actions will change this basic reality: An unscrupulous "seller's cartel" now manipulating California's electricity market is likely to make this summer unbearable. This cartel consists of the major companies controlling most of the uncommitted electric generation and natural gas transmission contracts in the Western United States. ?????To fight this cartel, we propose a plan with a stiffer backbone--a hard-nosed "buyers' cartel" and, if necessary, the forced purchase of in-state generating plants. Failing such actions, Californians face a blackout-riddled summer with a potential electricity bill of nearly $50 billion. ?????The governor's plan to beat the sellers' cartel is built on too many "ifs": If the West escapes a hot summer, if the increasingly unreliable power plants suffer no outages, if 20% conservation gains materialize, if there's enough natural gas to fuel new plants, if the cartel doesn't withhold supply. ?????Failing any one of these "ifs," and with forecasts warning of Stage 3 alerts that could stretch a full six months, the sellers' cartel would gorge as it never has before. Wholesale prices could double or triple from already exorbitant rates of 25 and 50 cents per kilowatt-hour to a dollar or more. This power costs no more than 15 cents to produce. ?????Unfortunately, Davis' strategy to negotiate long-term power contracts does little to reduce California's short-run vulnerability. Most contracts don't even begin until 2002. President Bush and federal regulators could end this crisis tomorrow by imposing hard price caps and ordering the cartel to supply power to the market. They have steadfastly refused. The results are staggering. ?????The sellers' cartel first took utility shareholders on a $13-billion ride to insolvency. After bleeding them dry, it was the taxpayers' turn. Indeed, after state government took over purchasing power in January, California's healthy budget surplus dropped by more than $5 billion. This led the Public Utilities Commission to approve the largest rate hike in California history. ?????However, if the governor's "Hail Mary" strategy fails, we project additional rate hikes of 100% or more. To avert this disaster, we propose that California join with the other "victim states" of Oregon and Washington to form a "buyers' cartel"--in essence, a buyers'-side monopsony to fight the sellers' price-fixing oligopoly. ?????In particular, we propose offering a "fair price" to the sellers' cartel, but not a penny more. This fair price would be cost-based--not market driven--and calculated daily on natural gas prices and other factors. It would include a generous profit margin to ensure sufficient incentives for investment in the Western market and result in an average price of 15 to 20 cents. ?????As an ancillary weapon, California must force the sale of all in-state plants owned by any member of the sellers' cartel refusing to provide ample power at the fair price. Under a declared state of emergency, the state has the authority to purchase the plants at reasonable prices, and they can be
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