California power crisis players head to DC summit at the Treasury Dept.

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http://biz.yahoo.com/rf/010109/n08314461_2.html

Tuesday January 9, 12:44 am Eastern Time

California power crisis players head to DC summit

By Patrick Connole

WASHINGTON, Jan 9 (Reuters) - Senior Clinton administration economic officials are set to convene an emergency meeting at the Treasury Department on Tuesday to mediate the explosive crisis in California's electric power markets.

The meeting was called last week by Gene Sperling, director of the National Economic Council, Energy Secretary Bill Richardson and Treasury Secretary Lawrence Summers.

The trio wants state, federal and utility company officials to reach a compromise solution for solving a crisis which has imperiled electricity service in California and more recently threatened the financial future of the state's two largest investor-owned utilities.

Executives from those utilities -- Edison International's Southern California Edison (NYSE:EIX - news) and PG&E Corp's(NYSE:PCG - news) Pacific Gas & Electric -- along with California Gov. Gray Davis and Federal Energy Regulatory Commission (FERC) Chairman James Hoecker, were also expected to attend.

Davis on Monday called the state's experiment with electricity deregulation ``a colossal and dangerous failure'' and outlined a number of moves aimed at improving power supplies in California.

The state has lurched into crisis in recent months as utilities struggle to cover the gap between soaring wholesale power prices and consumer rates that cannot rise because of capped rates.

TALKS TO LAST UNTIL ``SOMETHING GETS DONE''

An Energy Department spokesman said talks would start at 1700 EDT (2200 GMT) and last until ``something gets done.''

Last week, the White House said the power crisis prompted them to step in an attempt to mediate a way to save consumers from electricity blackouts, utilities from bankruptcy and the nation from what could be a widening economic spillover if the situation spirals out control and hits banks and other groups.

Richardson, speaking during a visit to Wyoming on Monday, urged all sides to ``give a little'' when they meet on Tuesday.

``Tomorrow, everybody needs to give a little -- the California utilities, the state government,'' Richardson told reporters.

California, the nation's most populous and richest state, has been struggling for months to keep the lights on in homes and businesses while its largest utilities complain they are nearly out of money. The firms have assumed some $12 billion in debt to pay for expensive power generation, spiked by costly natural gas prices amid strong demand and tight supplies.

Under California's 1996 deregulation laws the utilities have not been able to pass the increase on to consumers.

The question of deregulation is under threat as a result, with Davis and others saying if the FERC does not take bold action to impose a regional power price cap, a consumer revolt would occur and return the state to regulated power service.

Even after the California State Public Utilities Commission (CPUC) last week approved a 90-day rate increase of 7 to 15 percent for utility customers, the two utilities have faced rating downgrades which have left their bonds with values near junk bond status and led to some job layoffs to cut costs.

The utilities had sought much higher increases: 26 percent for PG&E and 30 percent for Southern California Edison.

REGIONAL PRICE CAPS MAY SOLVE PROBLEM

Richardson said he hoped regional price caps would be ``seriously considered'' at Tuesday's meeting. He has previously said regional price caps may be a way to solve the problem.

While utilities ponder bankruptcy, consumer groups have fumed over the rate increases, saying the public is being set up to bail out an industry that has enjoyed years of profits.

Separately on Monday, Southern California Edison said a federal court had upheld its right to recover reasonable costs it incurred in purchasing power for its customers.

The company is suing the CPUC, seeking the right to recover from customers about $5 billion it spent on purchasing power.

In a closely watched speech, Davis on Monday repeated his pledge to set aside $1 billion in his budget to help bring new power plants on line and promote energy conservation.

He also said he would push for overhauling the ``crazy'' bidding process for electricity, and put more public advocates on the governing boards of the Independent System Operators.

Davis said he would ask all Californians for a voluntary 7 percent reduction in power consumption and said he would back this call up with a $250 million investment that includes cash incentives to replace appliances with more efficient models.

He also vowed to expand the authority of the governor to act under a state of emergency in the event of imminent power outages.

-- (in@energy.news), January 09, 2001

Answers

Bardou stop with the energy posts already!

-- You are more (p@ranoid than. normally), January 09, 2001.

were all gonna die

-- para - noid (paranoid@hiding.place), January 09, 2001.

Regional price caps?? Hmmmm, it seems Nixon tried this sort of crap before, don't people ever learn?!!!!

I guess too if California wanted to reduce their energy consumption they could just turn off the klieg lights over at the Oprah set.

-- mbo (rfp@mail.com), January 09, 2001.


http://news.bbc.co.uk/hi/english/business/newsid_1106000/1106163.stm

BBC

Monday, 8 January, 2001, 16:29 GMT

Utility fears hit US banks

Speculation is mounting that US politicians will step in to rescue two debt-ridden utilities, out of fear that their failure could undermine the banking sector.

If the two Californian utilities go bankrupt, it could pose a major threat for banks such as Bank of America and JP Morgan, the utilities' creditors.

The chance of bankruptcy has already sent fears through the nation's jittery equity and debt markets, amid rumours that the Bank of America is in financial difficulties.

The Clinton administration is to meet on Tuesday to try and solve the utilities' problems.

Amassed debt

California's two biggest electricity suppliers - Southern California Edison and Pacific Gas and Electric - are on the brink of bankruptcy.

The utilities' financial difficulties led to widespread power cuts throughout the state, home of Silicon Valley, throughout the summer.

The firms have been legally prevented from raising electricity bills, whilst being forced to pay much higher costs for wholesale electricity.

This combination has forced the utilities to amass debt at an alarming rate.

Pacific Gas and Electric is currently borrowing an average $1m per hour to pay for electricity delivered to its 4.5m customers.

And at the end of December, Southern California Edison had unrecovered power costs estimated at $4.9bn.

The companies will run out of cash within three weeks if they do not get state help or regulatory relief.

State intervention

Analysts think that this relief is likely to come, with either the state or the courts intervening to avoid a further setback to the US economy during its current sharp slowdown.

"Not for a single instant do I believe that politicians are so stupid as to allow the utility industry in the largest state in the country to go out of business," said Lawrence Cohn, an analyst at Ryan, Beck and Co.

The fear is that the bankruptcies could create a crisis in the banking sector which would then exacerbate the US economic slowdown.

And it would counter the Federal Reserve's attempt to prop up the economy by cutting interest rates.

"Interest rates don't solve everything," said Bill Meehan, chief market analyst at Cantor Fitzgerald. "You can't have any real rally if the banks aren't rallying."

The perils of competition

Electricity utilities may seem unlikely candidates to spark a bad loan scare.

Electricity is used by almost everybody almost every day, thereby guaranteeing a revenue for electricity suppliers.

But it all started to go wrong for the electricity suppliers when the government deregulated the power sector.

Deregulation allows competition in the marketplace, theoretically ensuring better customer service and lower prices.

But these intentions backfired when it emerged that demand for electricity outstripped the capacity to generate it, and prices soared.

In an attempt to keep prices lower, the regulator dictated a maximum price, or price cap.

No win situation

But the suppliers argue that in a free market, prices should be dictated by strength of demand rather than regulation.

As the regulation stands, the electricity suppliers are left in a no- win situation: they must pay up for wholesale electricity, but cannot pass this cost onto the customers.

The utilities will be fighting for a change to this legislation at Tuesday's meeting.

The meeting is to be attended by Treasury Secretary Lawrence Summers, Energy Secretary Bill Richardson, members of the Federal Energy Regulatory Commission and executives from the two utilities.

-- Wish (them@good.luck), January 09, 2001.


"Bardou stop with the energy posts already!

-- You are more (p@ranoid than. normally), January 09, 2001."

Prove that it was Bardou that posted this.

-- -- (in@energy.news) (-- (in@energy.news)), January 10, 2001.



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