http://www.ocregister.com/news/summer00419cci2.shtml

LINK

State's power tab may soon double

Experts predict a daily rate of $150 million this summer, as Davis considers not paying beyond a set rate.

April 19, 2001

By HANH KIM QUACH

The Orange County Register

SACRAMENTO - The state's tab for buying electricity is expected to double to $150 million a day during the summer's peak-usage periods, experts said Wednesday, meaning an even faster depletion of the state surplus unless a series of measures is undertaken.

Since the state began buying energy in January, California has spent an average of about $45 million a day. As of last week, the state had run through more than half of its $8.5 billion surplus. Last week, though, the cost went to more than $70 million a day, because Pacific Gas & Electric filed for bankruptcy and power suppliers have raised prices for fear of non-payment, and worse times are predicted.

While Gov. Gray Davis has touted a $10 billion bond issue to shore up the state treasury and cover past and future energy purchases, many analysts are saying it won't be nearly enough.

So one of the actions Davis and top legislators now are weighing: Setting a limit on what the state will pay for electricity and facing rolling blackouts if generators aren't willing to sell. Some top economists and consumer activists are pushing for the hardball tactic.

University of California, Irvine, economist Peter Navarro - among those advocating such a "buyers' cartel'' - said Wednesday that if the state doesn't take control of the situation, it could spend as much as $50 billion on power over the next six months. That is about equal to the amount the state spends on kindergarten through college education each year.

Davis is approaching the idea with great caution, his spokesman said.

"When there are blackouts, law enforcement is impacted, traffic lights go out, people living on respirators are affected," said Steve Maviglio. "We'd be playing a big game of chicken with the generators and if they don't blink, then we'll suffer severe consequences."

Need to act swiftly prompts bold talk

Such talk grows from a window of opportunity to act that narrows as summer approaches.

The state was hoping to avoid paying the premium "spot market" price for electricity this summer by locking up a series of long-term contracts to buy energy at relatively low prices. However, analysis of the contract details released so far shows that the state will be far short of the 20,000 megawatts of electricity analysts estimate it will have to buy at peak demand periods - typically hot weekday afternoons.

At best, by July 1 the state will have secured through long-term contracts 4,200 megawatts of power at peak periods. By Aug. 1, the state might have as much as 4,605 megawatts.

That means the state will buy most of its power above the premium rates that have bankrupted one utility and put another on the brink of insolvency.

Based on a variety of assumptions - a modest conservation rate, peak demand numbers and the rate of plants that will be down for maintenance - two analysts, Mark Bernstein of the Rand Institute and Michael Shames of the consumer group UCAN, on Thursday independently came up with the $150 million-a-day estimate.

Navarro said he thinks it could go even higher, considering that at least one provider, the Bonneville Power Authority in Oregon, expects 250 percent rate increases this summer and one power company in the Northwest last month paid the same amount for power as it had the entire year before.

Bond issue relied on to repay treasury

"There's a good possibility that the state will be out of cash because of electricity prices this summer," said Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights.

Under that scenario, programs in every facet of state government - which are now being told not to count on new money and in some case have received modest cutbacks - could be severely slashed.

But Davis has been reassuring, saying the bond sale will raise enough money to reimburse the state.

Davis, has said that while power purchases will strain the state budget, it won't deplete the treasury. He expects state spending on electricity would be repaid from the $10 billion in bonds the state hopes to sell in May or June. But bond traders are starting to worry that the size of the bonds will not be enough to cover current spending - and the cost of procuring power in the next few years.

The money would be repaid to the bondholders from what ratepayers in future will pay under Davis' long-term contracts.

Meanwhile, Davis' quest to sign more contracts continues. He has 24 signed and has about two dozen more under negotiation.

-- ($@$.$), April 20, 2001

Answers

Why are the other states not under such dire circumstances?? Because they are not dependent on the spot market to the extent that California is. Why is that? They generate the bulk of their own electricity in-state. Sure, maybe it means they have had to put in coal or nuke or local gas-generated, but they've done it while California is relying on out-of-state suppliers from the north and east. And now the Feds are supposed to force those out-of-state suppliers to cap their prices to something that California picks as acceptable??!!

-- libs are idiots (moreinterpretation@ugly.com), April 20, 2001.

LINK

Published Friday, April 20, 2001, in the San Jose Mercury News

CALIFORNIA'S ENERGY CRISIS

Credit-raters put state on watch

BY JENNIFER BJORHUS Mercury News

All three of the nation's influential judges of credit risk now have California on a credit watch, saying they are deeply concerned about the economic impact of the state's power crisis.

The Fitch credit rating agency made it unanimous Wednesday when it warned that the thickening electricity quagmire, as well as lower than expected tax revenue in February and March, could mean broader risk for the state's budget.

The announcement is a signal that Fitch, too, may downgrade its ratings on California's nearly $30 billion in public debt, a move which could cost taxpayers millions.

The announcement comes as state lawmakers consider a bailout plan for Southern California Edison, Pacific Gas & Electric Co. sits in bankruptcy and state officials bleed through the state's general fund as they buy expensive electricity for consumers.

Earlier this week, Gov. Gray Davis announced that the average bill for electricity purchases has risen from $45.8 million a day in the last week of March to $73 million a day.

Moody's Investors Service and Standard & Poor's have already issued their own credit warnings, although none of the three agencies has downgraded the state's very good double-A credit rating.

Bond ratings are important yardsticks that bankers and investors use to price municipal and corporate bonds. A downgrade would force California to offer bond buyers higher interest rates going forward, costing taxpayers.

The state was last at a lower A rating back in 1994.

Moody's changed California's Aa2 general obligation bond rating outlook from stable to negative on April 6, the day PG&E filed for bankruptcy. Standard & Poor's has had the state's AA rating outlook at negative since January, when the state began buying electricity for the utilities.

The deciding factor for Fitch, said Fitch vice chairman Claire Cohen, was the disagreement over how the money from the new electricity rate increase will be spent.

The California Public Utilities Commission ruled in late March that money generated by higher electricity bills should go first to pay the state Department of Water Resources, which has been buying electricity for the utilities. PG&E has argued that if the state is paid first, there won't be any money left for the company.

The utility is formally challenging the PUC decision, and the move threatens to hold up the estimated $12 billion to $14 billion of bonds the Department of Water Resources plans to issue to buy more electricity.

``With that being appealed, you don't have a clean authorization,'' Cohen said. ``It signals to me that it could delay the financing process.''

A second concern is that the state isn't collecting as much in taxes as expected, Cohen said. Tax collections for both February and March were below forecast. The amount of personal income tax the state collected in those months fell short by $455 million, or 14 percent less than expected.

Cohen said she made her decision before hearing that the state's power costs now exceed $70 million a day. Cohen and David Hitchcock, the California analyst for Standard & Poor's, agreed those rising costs are a definite concern.

``It doesn't take much of a change in economic growth to make some of these projected fund balances disappear and so we're very worried about what the current economic activity is, particularly in Northern California with some of the problems with the high-tech area,'' Hitchcock told analysts and investors last week in a conference call.

Other economy-watchers expressed concern.

Sandy Harrison, assistant director of the state Department of Finance, said the move reinforced the importance of solving the power problems soon.

http://www0.mercurycenter.com/cgi- bin/edtools/printpage/printpage_ba.cgi

-- ($@$.$), April 20, 2001.