Utility bailout falters in California Assembly

California has spent more than $400 million on costly short-term power purchases     WEB EXCLUSIVE Casey Wian: The California Power Crisis

In this story: Price controls and protests Disputed $4.8 billion 'The house is on fire' 'We need to put the fire out' RELATED STORIES, SITES

SACRAMENTO, California (CNN) -- A $10 billion plan to rescue California's two largest utilities failed early Thursday in the state Assembly, but supporters said they would try to quickly revive the measure.

Californians struggling with a chronic shortage of electricity face a 17th straight day of living under a Stage 3 power alert, meaning rolling blackouts are possible Thursday.

The state Senate passed a measure Wednesday to let the state sign long-term contracts to buy power and sell it to the customers of the state's two largest utilities, Southern California Edison and Pacific Gas & Electric. The Assembly, the lower house of the state legislature, also was expected to pass the measure and send it on to Gov. Gray Davis for his signature.

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But lawmakers adjourned proceedings after the measure failed to secure enough support from Republicans to pass, and Democrats said they would make another attempt to push the bill through later Thursday.

Many Republicans and some Democrats in the Assembly took issue with a provision that would let the state Public Utilities Commission raise power rates to cover wholesale costs. Spikes in the wholesale price of electricity in a deregulated market helped trigger the California electricity crunch, and state laws deregulating utilities prevented utilities from passing along most of those costs to consumers.

"The people not to blame are the ratepayers and taxpayers. They are not to blame," Assemblywoman Jackie Goldberg, a Democrat, said. "It is time for us to say on their behalf that we are not going to continue a practice which requires us to buy on a spot market the most expensive energy you could buy."

Added Assemblyman David Cox, a Republican, "There is not a single thing in this bill or the bills that I have seen that addresses that little old lady or man who is living on a fixed income."

Price controls and protests

Two demonstrators were arrested Wednesday outside the governor's office as more than a dozen consumer activists protested what they called a taxpayer-financed bailout.

"These are multibillion-dollar companies that have the ability to bail themselves out without our help," said Medea Benjamin, one of the protesters charged with obstructing police.

Meanwhile in Washington, U.S. Senate Democrats and Western utility companies urged federal price controls on wholesale power Wednesday, as fallout from California's power problems appeared to spread across the West. So far, President Bush has opposed the idea.

Sen. Jeff Bingaman of New Mexico, the panel's ranking Democrat, said the Bush administration "has an obligation to find a solution ... before the crisis worsens."

Bingaman said the administration's "only solution to the problem" in California so far has been to recommend oil drilling in Alaska's Arctic National Wildlife Refuge.

Disputed $4.8 billion

California has already spent more than $400 million on costly short-term power purchases on behalf of Edison and PG&E, which have been denied credit by suppliers.

But a state audit found PG&E ignored months of warnings that California was headed toward an energy crisis and took no steps to conserve cash until it was too late.

Also, according to the report released Tuesday night, SoCal Edison transferred $4.8 billion to its corporate parent, Edison International, during the four years leading up to the state's electricity crisis. The amount would have covered much of the massive debt the utility has accrued since May.

That issue was raised on Capitol Hill during a five-hour hearing before the Senate Energy and Natural Resources Committee.

"It seems to me the shareholders came first," Sen. Ron Wyden, D-Oregon, told Southern California Edison Chairman Steve Frank, who defended the legal transfer to SoCal parent Edison International.

Frank rejected a suggestion by Wyden of "money laundering" and said the money was transferred over five years, reflecting proceeds from the state-mandated sale of the utility's power plants.

"The money simply went back to shareholders and investors," Frank said, a "normal business practice."

At the U.S. Senate hearing, lawmakers heard repeated requests, mostly from California and Northwest utilities, for federal price controls on wholesale power. Prices have soared not only in California but also in many of the other 10 states connected in the Western power grid.

Bush, while conceding that California's power problems are beginning to have widespread impact, has not allowed the Federal Energy Regulatory Commission to impose price controls.

Power suppliers have been accused of price-gouging and manipulating the California market, although no clear evidence of such activities has surfaced.

'The house is on fire'

Generating companies argued again Wednesday that their prices simply reflect short energy supplies and market restrictions under California's now widely criticized attempt at deregulation.

At one point during the hearing, Sen. Dianne Feinstein, D-California, asked some of the out-of-state power generators that lined the witness table for "a little cooperation" in addressing her state's electricity crisis.

"All of you have made a lot of money off this," she said, scolding the executives for appearing "not to care what happens, not to care about the people that are being thrown out of jobs."

Among power producers represented by witnesses at the hearing were Calpine Corp., Reliant Energy Wholesale Group, Enron and the Williams Cos., all major providers of power to California's utilities. Like many energy companies, they have posted record profits during the past year.

Williams President Keith Bailey rejected suggestions of price-gouging and said that most of the power his company has sold was at a reasonable price "very marginally above our actual costs."

Like other power producers, Bailey said that a federally imposed cap on wholesale prices "makes no sense" and would discourage production, affect supplies and discourage consumers from conserving energy.

Price controls "have not worked. they don't get at the fundamental supply and demand problem," maintained Steve Kean, executive vice president of Enron, the largest seller of wholesale electricity in North America.

'We need to put the fire out'

As California tries to address its immediate power problems, consumers in other Western states already were feeling the impact with dire predictions that the problem will get worse this spring and summer.

Mark Crisson of Tacoma Public Utilities in Tacoma, Washington, said his company recently boosted retail electricity rates by 50 percent and may have to borrow $100 million to keep up with wholesale price spurts.

"We just can't raise our rates fast enough to keep up with what we're seeing in these (wholesale) markets," Crisson said. Like others, he urged temporary federal controls on prices across the West as a stopgap.

"The house is on fire, and we need to put the fire out before we do remodeling," he told the senators.

The Associated Press contributed to this report.

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As lawmakers plug power holes, consumer groups decry 'bailout'
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January 25, 2001

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