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Feb 18, 2001 - 04:57 PM

Taxpayer, Ratepayer Costs Spiral in California Energy Crunch By Don Thompson Associated Press Writer

SACRAMENTO (AP) - Negotiations were to begin Monday on Gov. Gray Davis' multibillion dollar proposal to rescue two utilities from the brink of bankruptcy, in part by buying thousands of miles of electricity transmission lines. Under the plan, the state would sell bonds to pay anywhere from $3 billion to $9 billion for the purchase of 26,000 miles of transmission lines, or about 60 percent of the state's total, from three cash-strapped utilites. The bonds financing the purchases from Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric would be repaid through consumers' electricity bills.

Fixed retail rates for electricity have contributed to the utilities' financial problems, but by this time next year customers of SoCal Edison and PG&E can expect to pay roughly 20 percent more for electricity than before the crisis peaked.

An emergency rate increase averaging 9 percent is expected to be made permanent, and the state's 1996 deregulation law allows for an additional 10 percent hike in March 2002.

"One way or the other it's money coming out of taxpayers' pocket," said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights. "Either it's coming out of their pocketbook in the form of higher rates, or it's coming out of the state treasury, where it could be used for education, tax cuts or other worthwhile programs."

Another part of the governor's plan would require the utilities to sell bonds to pay back some portion of the $12 billion-plus in debts they have run up since the crisis began. The bonds would be guaranteed by a set amount of revenue from customers' monthly payments to the utilities.

The total amount of bonds sold by the utilities will be determined, in part, by how much the state is able to recoup from the utilities' parent companies.

Earlier this month, Davis signed a law allowing the state to sell $10 billion worth of bonds to buy power at lower rates under long-term contracts. The state has already committed close to $2 billion since early January to keep the lights on for customers of the two cash-strapped utilities, PG&E and SoCal Edison.

Anticipated direct costs to the state include an unspecified amount to buy "conservation easements" to protect 165,000 acres of undeveloped land in watersheds that feed hydroelectric plants as well as the implementation of a state-run conservation and energy efficiency program.

The energy crunch eased a bit over the weekend. The California Independent System Operator in Folsom ended a 32-day run of Stage 3 alerts on Friday night, thanks to lower demand over the holiday weekend. ISO spokesman Patrick Dorinson said electricity supplies were adequate through Monday.

The state's power woes are the result of soaring prices for electricity and home heating, which have been driven by a nationwide increase in natural gas prices. A deregulation law bars the utilities from raising retail rates to meet the rising wholesale costs of natural gas.

The Democratic governor, whose plan to solve the crisis has yet to win support from the utilities or Republicans in the Legislature, says he wants to avoid rate hikes beyond those already approved.

Davis' plan would require the utilities to sell electricity they generate within California to the state at cost. It also would force the utilities' parent corporations to refund $1 billion or more that were transferred from the subsidiaries when selling electricity was profitable.

Many in the utility business and the Legislature - including some members of his own party - don't think that will be possible. They have argued the solution is to simply allow them to raise rates to cover their costs.

http://ap.tbo.com/ap/breaking/MGATYA1BDJC.html

-- Martin Thompson (mthom1927@aol.com), February 18, 2001