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Deadline looms in California power crisis Talks expected to resume Sunday January 14, 2001 Web posted at: 10:38 a.m. EST (1538 GMT)

-------------------------------------------------------------------------------- In this story:

Tuesday deadline

'Will the public benefit?'

Price controls sought

(CNN) -- Talks aimed at bringing stability to California's troubled utilities are expected to resume Sunday, just two days ahead of what could be a crucial financial deadline.

Although negotiations between state, federal and utility company officials ended Saturday with no decisions reached, the Clinton administration says California Gov. Gray Davis has proposed a "framework" for meeting the state's long-term energy needs and keeping its two largest utilities from bankruptcy.

After a seven-hour bicoastal video conference -- led in Washington by Treasury Secretary Lawrence Summers and by Davis in California -- state officials are now in charge of settling the power crisis by the end of the Martin Luther King Jr. holiday weekend.

"The governor laid out a framework for him and the legislative leadership to work on," White House National Economic Council Director Gene Sperling told reporters afterward. "The issue is now for them to work out the proposal."

Davis, who's been pushing to put the state into the role of an electricity broker, said Saturday that California is "a credit-worthy purchaser. All of us that met today are joined at the hip, and if we are going to move forward, we will move forward together."

Representatives from power providers Pacific Gas & Electric and Southern California Edison -- the state's two largest investor-owned utilities -- declined comment after the meeting.

The two utilities say they have been pushed to the edge of bankruptcy because of soaring wholesale power prices and an inability to pass those costs on to consumers. They argue that temporary rate increases approved by the California Public Utilities Commission aren't high enough to help.

Tuesday deadline Industry experts view Tuesday as a crucial deadline for settling a deal since it marks the first day that financial markets are open after the long weekend. Bond rating services and stock market traders are expected to hammer PG&E and SoCal Edison if a deal is not seen as imminent.

Summers said state leaders had a "clear recognition" of what the situation was and would work in an "expedited" manner to complete a settlement.

Saturday marked the fifth consecutive session of talks in the nation's capital, and the second seven-hour meeting of the top leaders, minus U.S. Energy Secretary Bill Richardson, who missed the Saturday session while traveling in the Middle East.

A federal offer to reconvene a high-level meeting of the 25 "principals" on Tuesday was made, according to Sperling, who said "we stand ready and available" if needed.

A key issue in the talks is a proposal for power-generating companies -- owed billions by PG&E and Edison -- to delay seeking money for a period of 90 days pending state assurances that the debts would be paid.

Industry and government sources said the discussions also are keyed on trying to establish the terms of long-term contracts between power-generating firms and utilities.

Long-term contracts would allow the utilities to hedge against having to buy electricity in the spot markets. In recent days wholesale power sold on the spot market has commanded about $320 per megawatt-hour, compared to $34 one year ago.

Wall Street analysts and sources close to the talks said the state wants a price cap of $55 per megawatt-hour for long-term contracts, but that level may not be high enough for out-of-state generators who see $70-$80 as more reasonable.

California's 1996 law deregulating the electricity market, once hailed as a model for others, lies at the core of the problem. The law:

Forced utilities to sell off much of their generating capacity. Prohibited them from signing long-term contracts to buy supplies. Barred increases in consumer rates until 2002.

'Will the public benefit?' Douglas Heller of The Foundation for Taxpayer and Consumer Rights, a consumer advocacy group, was wary about Davis' plan. "If the state becomes a public power agency buying electricity, will the public benefit from that?" Heller asked. "Or is it a mechanism for giving utilities their bailout?"

A state agency, under emergency powers from Washington, already has spent roughly $30 million buying electricity in the past month to stave off rolling blackouts during the power crisis. Officials want California to expand and continue wholesale electricity buys, selling the power to utility companies, said Steve Maviglio, a Davis spokesman.

The California Department of Water Resources made the earlier emergency power purchases, including about 24,000 megawatt hours of electricity on Thursday and Friday, Carl Torgersen, the department's chief of utility operations, said Saturday. The department acted under authority of emergency orders by Energy Secretary Richardson.

"(This) is something we've never done before," Torgersen said. "We're in a new era with deregulation."

Wholesale power prices have increased fivefold in California since last summer, accompanied by a series of drops in the state's power reserves.

On Thursday, power reserves in California dipped below 2 percent after a storm cut production at a key nuclear station. The crisis was averted by a last-minute injection of hydropower from the federally owned Bonneville Power Administration in the Pacific Northwest. But the Independent System Operator, which manages most of California's power grid, says electricity supplies are still tight.

Price controls sought Davis and Govs. John Kitzhaber of Oregon and Gary Locke of Washington said Friday that they would:

Urge their residents to cut electricity demand 7 percent to 10 percent. Try to reduce power use by their state governments by at least 10 percent. Look into joining forces to buy energy-efficient products for state and local agencies to get through the crisis. Davis, Kitzhaber and Locke said in a written statement that the Federal Energy Regulatory Commission should impose immediate wholesale price controls.

Sen. Dianne Feinstein, D-California, said she would propose legislation to give the U.S. energy secretary authority to cap skyrocketing wholesale electricity prices in 11 Western states.

It would let the secretary impose a temporary wholesale price cap if there is "unjust pricing." The cap would remain in effect until prices stabilized, said Howard Gantman, the senator's spokesman.

CNN Correspondent Greg Lefevre, The Associated Press and Reuters contributed to this report.

http://www.cnn.com/2001/US/01/14/power.woes.01/index.html

-- Martin Thompson (mthom1927@aol.com), January 14, 2001

Answers

Under California's weird deregulation plan I wonder why they think prices will ever stabilize.

-- Wellesley (wellesley@freeport.net), January 14, 2001.

Whenever politicians get so deeply into the act, look out. It can only exacerbate the downfall.

-- Uncle Fred (dogboy45@bigfoot.com), January 14, 2001.