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SACRAMENTO — California’s Senate gave Gov. Gray Davis more leverage in his negotiations with utility companies Tuesday, approving legislation that would allow the state to buy or build power plants. 

The bill to create a public power authority, which still needs approval from the Assembly, could involve state officials much more deeply in the energy business. 

“With the passage of this bill ... I think we can say deregulation in the state of California is officially dead,” said Sen. Bill Morrow, R-Oceanside. 

Skyrocketing wholesale electricity prices, due to high natural gas prices and scarce supplies, have nearly driven the state’s two largest utilities to bankruptcy. 

Sen. John Burton, the bill’s author, says creating a power authority will give the state more control over the wholesale market. State-owned power plants could charge lower prices, and building new plants could increase supply, easing wholesale prices. 

Ratepayer advocate Nettie Hoge – who has long campaigned for public control of the state’s power industry – called it a significant, though still tentative step. 

“The power authority bill is a placeholder, in a way, to give us the flexibility to enter the business. It still depends on whether the state has the appetite to own assets,” said Hoge, executive director of The Utility Reform Network. 

Davis and state lawmakers are considering taking over the utilities’ transmission system, along with the responsibility of upgrading and maintaining the aging lines. The power authority would also have the authority to seize plants by eminent domain, a power the governor also has under an emergency order issued last month. 

Davis has said he’d rather negotiate a deal with the utilities for their transmission lines or other assets in return for helping the companies regain their creditworthiness. 

Sen. Steve Peace, the Chula Vista Democrat who was one of the primary authors of the state’s 1996 energy deregulation law, has avoided much of the current debate, and has sought to blame the energy crisis on federal regulators’ refusal to impose price caps on wholesale energy bills. 

But he spoke enthusiastically in favor of the public power bill on Tuesday, urging the governor to seize the state’s power plants, many of which are owned by Texas companies. 

“This is the only choice the kidnappers have given us,” Peace said. Either take control of the generation plants “or raise the Lone Star flag to the top of the Capitol and give up the ghost.” 

But if the state starts seizing plants, it could deter private companies from building more power generators in the state, having the opposite effect lawmakers were trying to achieve, said Jan Smutny-Jones, executive director of the Independent Energy Producers. 

“That’s the big concern I have – that as California starts to creep toward nationalizing their system, they’re going to drive away the very plants they need to attract,” he said. 

PG&E spokesman Ron Low declined to comment on the legislation. SoCal Edison representatives didn’t immediately return calls by The Associated Press seeking comment. 

Administration officials continued meeting with Edison and PG&E executives in San Francisco Tuesday, negotiating the governor’s plan to rescue the financially ailing utilities, said Steve Maviglio, spokesman for Davis. 

Davis has proposed buying the utilities’ transmission lines to give the companies an infusion of much-needed cash. 

The 24-14 vote on the bill by Burton, D-San Francisco, was split down party lines, with all Republican senators voting against the measure. The bill now goes to the Assembly. 

Another bill still in the Senate would give the governor the authority to negotiate the purchase of the utilities’ transmission lines – about 60 percent of the state’s power grid. The other 40 percent is owned by municipal districts and the federal government. 

California’s two largest utilities say they’ve lost nearly $13 billion due to high wholesale power prices, which the state’s 1996 utility deregulation law blocks them from recouping from customers. 

The state has already stepped in, committing $10 billion to purchase power for customers of Edison and PG&E. That and other fixes under consideration by Davis and lawmakers – including a state purchase of 26,000 miles of transmission lines – could cost consumers and taxpayers $20 billion, or roughly $590 for every California resident. 

The bulk of the money would come from bond sales to be repaid by utility customers over many years. 

Consumer advocates praised the power authority bill, saying the state should have moved toward the public power model five years ago instead of its “failed experiment” with deregulation, citing the much lower rates that municipal power customers have paid throughout the crisis. 

“The Department of Water and Power in Los Angeles and Sacramento Municipal Utility District, have proven that publicly owned power systems can be more efficient, more reliable and more affordable for consumers,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights. 

Also Tuesday, a federal court judge refused a power generator’s request to be paid for electricity sold to the two utilities through the nearly defunct California Power Exchange. 

Several power generators have sued the nonprofit exchange to prevent it from forcing them to pay for Edison and PG&E’s defaults. 

Under a federal tariff governing the exchange, if a buyer of power defaults on payments, every member of the exchange – including power sellers – must pay a portion of the debt. The two cash-strapped utilities have already defaulted on nearly $1 billion and will likely do the same on future payments. 

U.S. District Court Judge Carlos Moreno said he wants power companies and the exchange to agree to a standstill while FERC decides how money and debts will be allocated among exchange members. 

A hearing has been scheduled for Thursday to discuss an injunction that would bar the exchange from charging the power generators their share of the default and keep generators from receiving payments until FERC rules.