California considers paying off power company debts

In this story: Officials deny plan is bailout Rolling blackouts RELATED STORIES, SITES

LOS ANGELES, California (CNN) -- California Gov. Gray Davis and state legislators are working over the weekend on a proposal to partially take over the state's two largest electricity utilities to ease a months-long power crisis.

Under the plan, approved Friday, the state would sell bonds to pay off the debts of Pacific Gas and Electric and Southern California Edison, both of which face possible bankruptcy. The plan is designed to put the utilities on sound financial ground, allowing them to buy power from generators that are reluctant to sell to them now for fear of not being paid.

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The second part of the proposal involves the state's move into the power-buying business. In an earlier measure, the state Legislature agreed to use $400 million of the state's surplus to purchase electricity for about a fifth of what utilities must now pay. The state would then sell that power, at cost, to the utilities for statewide distribution.

Many analysts, consumer groups and lawmakers blame the 1996 deregulation of the power utilities for the state's power woes.

The deregulation law ordered utilities to shed power-generating facilities and buy electricity from wholesalers, but barred them from raising customer rates. Buying electricity got more expensive because of a shortage in supply.

Officials deny plan is bailout

Many consumer advocates labeled the plan as nothing more than a costly government bailout and a taxpayer rip-off.

"It's not a bailout," Davis hastened to say after the proposal emerged this week.

Assembly Speaker Robert Hertzberg said: "It's not just a quick fix, a Band-Aid. It's not a gift."

The deal would be dwarfed by the federal bailout of the savings and loan industry, where cost estimates soared as high as $481 billion. But it would be much bigger than the 1995 bailout of Orange County, which rolled up $819 million in debts, and the 1979 Chrysler bailout, even when inflation is factored in.

Congress authorized $1.5 billion for the moribund automaker while it reorganized under Lee Iaccoca. Chrysler used $1.2 billion of the money.

"Any of these proposals has an element of bailout," said Richard Gilbert, another economist at the University of California at Berkeley. "They are subsidizing companies that are running at a deficit."

Gilbert said any state-sponsored solution needs to raise electricity rates to a level that encourages conservation and allows utilities to buy power at new, higher rates. Otherwise, "they are trying to solve the problem by going around it," he said.

Rolling blackouts

For 11 consecutive days, Californians have been threatened with temporary blackouts to conserve energy statewide, with only a four-and-a-half hour respite on Friday.

Such intentional blackouts are allowed under a Stage 3 alert, which means that reserve power on the California electricity grid has dropped to 1.5 percent or less.

Under those conditions, the California Independent System Operator can order the state's utilities to institute rolling blackouts.

CISO expects the current alert to remain throughout the weekend and has asked consumers to watch the Super Bowl in large groups to conserve power.

CISO officials asked businesses participating in a voluntary interruption program (VIP) -- in which they pay lower rates in exchange for turning off their power when asked -- to shut down early Friday morning.

If the VIP users do not turn off their electricity voluntarily, they pay extremely high penalty rates for the power they use. But Friday, the Public Utilities Commission of California voted unanimously to suspend those penalties.

While power managers scrounged for electricity, Mexico said it could make available to California 50 megawatts of electricity a day (enough to light 50,000 homes) and another 250 megawatts for purchase on the open market.

CNN National Correspondent Martin Savidge, Reuters and The Associated Press contributed to this report.

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