Californians to cover $20 billion for energy crisis

The Associated Press
Monday February 19, 2001

SACRAMENTO – California taxpayers and utility customers will pay more than $20 billion to end the state’s energy crisis, under proposals by the governor and Legislature. 

Negotiations were to begin Monday on Gov. Gray Davis’ proposal to buy 26,000 miles of transmission lines – about 60 percent of the state’s total – from three investor-owned utilities. 

But direct state spending would be only a small part of the cost of solving the power crunch. The bulk would come from billions of dollars in bond sales, to be repaid by utility customers over many years. 

“It’s hard to quantify without getting sick to your stomach,” said consumer activist Harvey Rosenfield. 

Even without those costs, by this time next year Edison and PG&E customers can expect to pay at least 19 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 a 10 percent hike in March 2002. 

“One way or the other it’s money coming out of taxpayers’ pocket,” said 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.” 

Among the costs: 

–$10 billion worth of bonds to cover the price of buying power for two nearly bankrupt utilities, Pacific Gas & Electric and Southern California Edison. Interest costs will add an estimated $7.5 billion to the bill. Some of the money raised by the bond sale – not expected to be conducted until May – would repay the state for the approximately $1 billion a month in tax money it currently is spending to keep the lights on. 

–$4.5 billion to $9 billion to buy transmission lines from Edison, PG&E and San Diego Gas & Electric. The purchase – and at least $1 billion in upgrades to the inadequate power grid – would come from bonds that customers would repay through their electricity bills. 

–$1 billion or more in direct state spending for a conservation and energy efficiency program. 

–An unspecified amount to buy “conservation easements” to protect 165,000 acres of undeveloped land in watersheds that feed hydroelectric plants. 

– A state-backed bond issue, proposed by the governor, to help Edison and PG&E pay an undecided amount of the $12 billion-plus in debts they have run up since the crisis began. 

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. The state’s power grid overseer continued a Stage 2 power alert Sunday. ISO spokesman Patrick Dorinson said electricity supplies were adequate through Monday. 

The electricity mess is the result of soaring wholesale costs for electricity, driven by a nationwide increase in the cost of the natural gas that fuels most power plants. PG&E and Edison say they are being driven to the brink of bankruptcy because California’s deregulation law bars them from raising rates high enough to cover the wholesale costs. 

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. But many in the utility business and the Legislature – including some members of his own party – don’t think that will be possible. 

The utilities have argued the solution is to simply allow them to raise rates to cover their costs. 

But Davis and others say state involvement can achieve cost savings. 

For example, state Treasurer Phil Angelides said California can fix the power grid more cheaply than private business because it can finance construction with tax-exempt bonds. The lower interest rate would save $62 million a year on a $1 billion, 30-year bond issue to fix the grid, he said last week. 

Davis’ plan would require the utilities to sell electricity they generate within California to the state at cost, saving millions. 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.