California gets help, warning from Bush administration

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Tuesday January 23, 7:47 pm Eastern Time

California gets help, warning from Bush administration

By Julie Vorman

WASHINGTON, Jan 23 (Reuters) - The Bush administration waded into California's power crisis on Tuesday, extending emergency orders that force out-of-state companies to supply natural gas and electricity to the state's struggling power industry, but warned that there would be no further extensions.

Energy Secretary Spencer Abraham, a former Michigan senator, agreed to continue a series of temporary orders begun by the Clinton administration to help California keep the lights on.

California said the measures were vital to keeping its crippled power industry operating. The nation's most populous state was hit by controlled blackouts last week due to tight supplies, and two major utilities have been brought to the verge of bankruptcy.

The orders signed by Abraham buy the state's Democratic governor and legislature two more weeks of breathing room while they try to fashion a long-term solution.

But the Bush administration made it clear that when the latest relief expires on Feb. 7, there will be no more.

``I strongly urge the parties to act immediately,'' Abraham said in a statement.

``A real solution must address the need for the construction of more electric power generation in California, reform of the flawed state market rules, restoration of the financial health of California utilities, and encouragement of greater conservation,'' he added.

Gov Gray Davis said he was pleased by the ``prompt and positive action'' from the new administration. A statement by the Department of Energy said, ``Governor Davis agrees with Secretary Abraham that, having granted this request, no further extensions will be necessary.''

Aides to President George W. Bush, a former Texas oilman, have repeatedly said he sees the California crisis as a self-inflicted problem that state lawmakers -- not the federal government -- must sort out.

But top officials such as Abraham, Treasury Secretary Paul O'Neill, and Environmental Protection Administration administrator Christine Todd Whitman met on Monday to discuss what federal options were available if needed.

California's two biggest utilities, PG&E Corp (NYSE:PCG - news) and Edison International (NYSE:EIX - news), have been pushed to the brink of bankruptcy by runaway wholesale power costs in the past several weeks. The utilities cannot pass through the higher costs to consumers, under California's landmark 1996 deregulation law.

The high prices and a shortage of supply have triggered brief blackouts for some 1 million California residents and businesses in the past week.

ORDERS BUY MORE TIME FOR STATE

State lawmakers have struggled to fashion a plan that will encourage lower, long-term wholesale prices and help the utilities regain their financial footing.

Top executives of Walt Disney Co, Boeing Co and other companies bought a full-page newspaper advertisement on Tuesday to press California lawmakers to act and prevent a slowdown in the state's huge economy.

One of the federal emergency orders signed by the Bush administration requires out-of-state power generators with extra electricity to sell supplies to California. The other order forces natural gas firms to continue selling fuel for the California utilities to run their plants.

Suppliers have balked at selling electricity or gas to the cash-strapped utilities, fearing they may not be paid.

Without an extension, the state would have been left on its own to secure electricity and gas for the utilities.

Pacific Gas and Electric and SoCal Edison, the operating units of the utilities, have no credit and are down to about 10 days' worth of natural gas supplies in storage.

The state of California has already agreed to spend some $400 million to buy electricity to close the huge gap between demand and what in-state utilities can provide. State officials say, however, that the money will run out within a week.

Although the state has a remaining budget surplus of some $5 billion, the money has been earmarked for education and other programs.

FERC CHIEF OFFERS LITTLE HELP

The new head of the Federal Energy Regulatory Commission, which regulates interstate electricity, said California should not look to the Bush administration for help in solving its electricity crisis.

``This is a state crisis,'' Curtis Hebert told CNBC television. Hebert, a former Mississippi state lawmaker, said the solution was for utilities to sign long-term contracts instead of buying supplies on the expensive spot market.

``They have the ability to resolve it and they are not following through with what we asked them to do on December 15th,'' he said, referring to a FERC order that endorsed long-term supply contracts.

FERC has been locked in a bitter battle with California officials and lawmakers, many of whom want the agency to cap wholesale prices in the western region. FERC has refused.

On Tuesday, the state initially warned that blackouts were imminent until it obtained emergency hydroelectric supplies from British Columbia.



-- (in@energy.news), January 24, 2001


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