Calif. Frustration with Power Crisis Grows January 12, 2001 8:20 pm EST

By Nigel Hunt LOS ANGELES (Reuters) - As Californians breathed relief a day after the state narrowly averted blacking out two million homes in an ongoing power emergency, there were signs of growing frustration with officials handling the crisis.

Gordon Smith, president of the state's largest utility Pacific Gas & Electric which has been driven to the brink of bankruptcy by soaring wholesale power prices, complained Friday that California Gov. Gray Davis, U.S. Energy Secretary Bill Richardson and other top officials were not doing enough.

In addition, a California congresswoman said she would introduce legislation to give the U.S. Energy Department the power to cap wholesale electricity prices at a regional level because federal regulators were not doing their job.

Rep. Anna Eshoo, a Democrat from the state's Silicon Valley area, said she was frustrated by the unwillingness of the Federal Energy Regulatory Commission (FERC), the independent agency that regulates interstate electricity, to take action.

FERC has been the focus of much criticism for failing to order price caps across the western U.S. and allowing power generators to rack up massive profits. Davis has been among its most savage critics.

In a speech at an economic conference, PG&E's Smith said his company has heard "sincere expressions of concern" from Davis and Richardson.

"But the bottom line is that we haven't seen much real action. The financial markets, frankly, have sent a strong message on the lack of leadership from the state on this issue. Half measures and delay won't get the job done," he said.

California is in the midst of a power crisis with a chronic shortage of supply threatening to plunge the country's most populous state into darkness and send wholesale prices to record levels.

BLACKOUTS NARROWLY AVERTED

On Thursday, the California Independent System Operator, which operates most of the state's power grid, had announced that up to two million resident would lose power in an unprecedented series of rolling blackouts. The state was rescued by emergency help from Canada and the Pacific Northwest and on Friday it became clear that a lack of money -- and not just power shortages -- had contributed to the prior day's near disaster.

The blackouts were narrowly averted when a more solvent state agency -- the California Department of Water Resources (CDWR) -- stepped in to buy power on behalf of the embattled ISO whose creditworthiness has nosedived because its two leading utility customers are tottering on the brink of bankruptcy.

U.S. Treasury Secretary Lawrence Summers, other senior Clinton administration officials and top executives of electric power companies tentatively planned to meet on Saturday to complete a plan to fix California's power mess, a source close to the negotiations said on Friday.

The high-level meeting was set to take place at the Energy Department at 3:30 p.m. EST, with some California officials participating via teleconference, the source said.

Summers and Richardson launched the negotiations on Tuesday to prevent the bankruptcy of Pacific Gas & Electric, a unit of PG&E Corp. and another utility Southern California Edison which is a subsidiary of Edison International .

San Francisco-based Pacific Gas and Electric and Southern California Edison, which is based in the Los Angeles' suburb of Rosemead, have run up billions of dollars of debt this year because they have not been allowed to pass on skyrocketing wholesale power costs due to a rate freeze imposed under the state's much-criticized power deregulation program.

The shortfall on power purchases at the end of December stood at $6.6 billion for Pacific Gas & Electric and around $4.9 billion for Southern California Edison.

CALIFORNIA FERC SEAT DEMANDED

California Democratic Sen. Barbara Boxer demanded that President-elect George W. Bush give the state a voice on FERC.

"I ask that you appoint a commissioner from California," Boxer wrote to Bush who will assume the presidency on Jan. 20. There are two vacancies in the five-person commission but Bush appeared more likely to look to his home state of Texas.

Power industry sources said Bush, a former Texas governor, was likely to turn to Texas state energy regulator Pat Wood to fill at least one of the vacancies with another Texan Judy Walsh a candidate for the second position.

Calif. Gov Davis met Washington Gov. Gary Locke and Oregon Gov. John Kitzhaber on Friday to plan joint action to tackle the energy crisis. All three are Democrats. The state governors called on the federal government to reintroduce the cost-based pricing system for electricity which existed before deregulation. As a minimum they sought the imposition of price caps.

"Although it is true that the real costs of energy are rising, it would be an unacceptable burden on consumers to pass on to them the current unprecedented increases in the wholesale cost of electricity resulting from non-competitive practices in the marketplace," Davis said.

Davis, however, was handed a letter during the meeting signed by five Republican governors emphasizing the importance that customers should be charged "the true cost of power." The letter, signed by Jane Dee Hull of Arizona, Judy Martz of Montana, Kenny Guinn of Nevada, Michael Leavitt of Utah and Jim Geringer of Wyoming also urged Davis to insist on more conservation.

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-- Martin Thompson (mthom1927@aol.com), January 12, 2001