No U.S. Bailout in Power Crisis, California Governor Says

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No U.S. Bailout in Power Crisis, California Governor Says

By Peter Behr Washington Post Staff Writer Wednesday, December 27, 2000; Page E01

With his state's two largest electric utilities edging closer to insolvency, California Gov. Gray Davis got advice yesterday from Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence H. Summers, but no offers of federal help.

At the end of a two-hour meeting with the two officials in Greenspan's office, Davis said that he sought opinions on how to deal with the breakdown in California's four-year-old electricity deregulation plan, which has confronted utilities with soaring wholesale costs for purchased power and recurring electricity shortages since the summer.

Davis declined to describe their response, telling reporters only that a federal bailout was not an option. "I didn't ask for that, nor, frankly, do I think that would be forthcoming," he said.

Saddled with $8 billion in higher wholesale costs for electricity that they are barred by state rules from passing on to consumers, Southern California Edison and Pacific Gas & Electric say they are running out of the credit and cash required to keep lights on throughout the state.

The California Public Utility Commission plans to meet Jan. 4 to consider a major increase in retail electricity rates. Financial analysts have projected that a jump of 10 percent to 20 percent will be needed to repair the utilities' badly damaged credit ratings, help lower their costs of borrowing and buy time to resolve the battle over how the $8 billion in higher energy costs will ultimately be paid.

"I'm under the impression that Wall Street will suspend judgment" on the utilities' prospects until then, Davis said.

The governor is scheduled to meet today with President Clinton to talk about the utilities' plight, but he said he isn't counting on help from that quarter either. In the short run, Davis said, Californians will have to cut electricity use.

In the long run, he added, California must generate more electricity. Although half a dozen new generating plants are planned or under construction, no new plants have been opened in more than a decade because of environmental or siting restrictions.

The one part of the federal government from which Davis and California energy regulators have asked for direct help has said no.

The Federal Energy Regulatory Commission, which oversees wholesale electricity prices, says it doesn't yet have grounds to force the state's electrical generating companies to refund the higher wholesale prices that they have been charging utilities since the summer -- prices that for some peak-hour deliveries have soared to 100 times year-ago levels.

Under California's plan, the utilities sold most of their generating plants to out-of-state suppliers, remaining responsible for power distribution.

"That is dereliction, either through stupidity or malicious intent . . . on the part of the Federal Energy Regulatory Commission," Carl Wood, a member of the California Public Utility Commission, said at a state hearing last week. "The law says wholesale prices will be just and reasonable. If they're not . . . they're illegal" and refunds should be ordered, he said. "FERC has refused to do that."

FERC, however, says that unless it has persuasive evidence that energy suppliers controlled the wholesale electricity market, the commission can't intervene in transactions between wholesale suppliers and the distribution utilities.

After investigations that began nearly six months ago into the breakdown of California's state-run power-marketing operations, FERC's staff says it hasn't found evidence of market manipulation.

Until they were changed in the past month, California's rules encouraged distribution utilities to put off purchasing a crucial part of daily supplies until the day the power was needed. At that point, industry analysts note, utilities wound up paying whatever price the highest bidder was demanding. Each hour's highest bid set the price for all energy purchased in that hour.

"You can't say that because prices are high there's market power. It could be that the market is working under the rules," said former FERC general counsel William Scherman.

http://www.washingtonpost.com/ac2/wp-dyn/A52091-2000Dec26?language=printer

-- Martin Thompson (mthom1927@aol.com), December 27, 2000


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