California governor to meet with U.S. energy officials about power crisis

In this story: Deregulation: 'Dangerous and colossal failure' Possible remedies Bankruptcy rejected Supply and demands RELATED STORIES, SITES

From staff and wire reports

WASHINGTON -- U.S. Energy Secretary Bill Richardson and California Gov. Gray Davis were scheduled to meet Tuesday in Washington to discuss potential solutions to what is being called an electricity crisis in the Golden State.

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The meeting, also expected to be attended by Treasury Secretary Lawrence Summers and Federal Energy Regulatory Commission Chairman James Hoecker, comes a day after Davis used his annual State of the State address to California's legislature to issue a blunt and stinging review of the state's deregulated electric power industry.

Deregulation, along with too few electric power plants, has been blamed for sky-high prices and power shortages that recently have threatened to force industry officials to implement rolling blackouts throughout the state.

Richardson has extended his emergency order requiring suppliers to sell electricity to California when the state runs short.

Davis has proposed an overhaul of his state's troubled electricity system, including creation of a public agency to build power plants, but the cash-starved utilities at the heart of the crisis say the plan offers too little short-term relief.

Deregulation: 'Dangerous and colossal failure'

In his address to the state legislature Monday night, Davis called California's power system deregulation "a dangerous and colossal failure." He threatened to seize the plants of wholesalers who gouge consumers or utilities.

"There is no easy solution," Davis said. "But, if I have to use the power of eminent domain to prevent generators from driving consumers into the dark and utilities into bankruptcy, then that's what I'll do."

Pacific Gas and Electric Co. and Southern California Edison Co., together serving about 25 million people, have been stung by a fivefold increase in wholesale prices since June. Rate caps have prevented the utilities from passing the higher costs on to customers, leaving them with $9 billion in losses.

PG&E and SoCal Edison say they face insolvency if they don't get more cash soon.

"While the governor's statements are welcome, we are concerned that unless strong ... steps are taken over the next few days, the financial crisis facing California's utilities will bring us to the point where we can no longer buy electricity and gas for our customers," PG&E said in a statement.

SoCal Edison said "urgent action is needed" to assure its fiscal stability.

Possible remedies

Davis' speech contained his strongest comments to date on California's electricity crisis. He pledged to set aside $1 billion in the 2001-02 state budget to stabilize the supply and price of electricity and provide new power generation.

And, although five new power plants are under construction, no new plants have been built in the state for the past 12 years. Many speculate that California's stringent environmental regulations make it too costly for private utilities to consider building in the state.

Davis did say that he would look at committing state-owned land as sites for new plants, but only on the condition that those plants sell their power in California.

Bankruptcy rejected

Davis rejected suggestions from consumer groups that PG&E and SoCal Edison be allowed to go into bankruptcy. "Our fate is tied to their fate. Bankruptcy would mean that millions of Californians would be subject to electricity blackouts," Davis said.

But he offered few details about his core proposal, the creation of a new power agency to buy and build new plants. He said he envisioned a state power authority, or perhaps an entity controlled jointly by the state and more than two dozen municipal utilities.

The Democratic governor did not mention a proposal to use state-backed bonds to finance the utilities' debt. Assembly Republican Leader Bill Campbell described that as a "major hole" in the governor's presentation."

Assembly hearings on the electricity crisis are scheduled to begin Thursday.

Supply and demands

California's electricity grid has been stressed for months. A hot summer followed by a cold winter have kept demand high, and supplies have been pinched as aging plants are idled for maintenance. Also, the power needs of neighboring states have reduced the supply of imported electricity.

Davis demanded criminal penalties for wholesalers that withhold power from the California grid during emergencies, and authority to force idled power plants back into operation. He also proposed adding 50 inspectors for the Public Utilities Commission and said his emergency powers should be expanded in the event of power outages.

The commission approved electric rate increases of 7 percent to 15 percent last week to help the troubled power companies, but Wall Street and the utilities called the move inadequate.

Fiscal analysts say more rate hikes -- or some other form of new revenue -- is needed for the investor-owned utilities.

"We have to be able to restore in the minds of the financial community the creditworthiness of California and its public utilities, or we will not have the ability to borrow the money to keep the lights on," said Tom Higgins, a senior vice president of SoCal Edison.

The Associated Press contributed to this report.

Meeting in Washington to grapple with California energy shortage
January 6, 2001

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