Features

SACRAMENTO — Gov. Gray Davis told Wall Street analysts this week that he can’t raise electricity rates to solve California’s power crisis because voters would approve an initiative blocking them “in a heartbeat.” 

As the Davis administration continued debt-relief negotiations with the state’s two huge cash-strapped utilities Friday, his Finance Department announced the state will need another $500 million to buy electricity for their customers. 

That brings the state’s power-buying costs to some $3 billion so far. 

Davis told 25 investment officials at a private meeting in New York on Wednesday that he believes he can persuade out-of-state suppliers who have made “more money than God” selling power to California to accept less than the full amount utilities owe them. 

However, analysts said Davis did not explain how he would finance his utility debt-relief plan for Southern California Edison and Pacific Gas and Electric Co. without raising rates for their customers. And several major power suppliers said Friday that they want the entire amounts they are owed. 

Davis was back in California after trying to assure federal officials and Wall Street that his plan will solve the state’s power problems. 

California has struggled with a tight supply and soaring wholesale power prices for months. 

Edison and PG&E say they’ve lost some $13.7 billion since early summer and are verging on bankruptcy due to soaring wholesale prices that California’s deregulation law blocks them from recovering from customers. 

Davis’ energy advisers continued negotiations Friday with Edison, PG&E and the state’s third investor-owned San Diego Gas & Electric. 

Davis’ plan centers on buying their 26,000 miles of transmission lines, getting 10-year contracts from Edison and PG&E to buy power from their remaining plants at cost and convincing Edison’s and PG&E’s parent companies to help cover their debts. 

The short-term drain on the state’s budget worsened Friday, as Davis’ Finance Department announced the state will need an additional $500 million by March 12 to buy power for Edison and PG&E customers. 

That brings the total the state has committed to costly short-term power purchases for Edison and PG&E since early January to $3.2 billion. The state so far has actually spent just over $2 billion of that, Finance spokesman Sandy Harrison said. 

The state is buying about one-third of the power used by the customers of Edison and PG&E, both denied credit by suppliers. The money will be repaid when the state issues $10 billion in revenue bonds in May, largely to finance cheaper long-term power contracts; those bonds will be repaid by utility customers. 

According to a transcript of Davis’ Wall Street meeting released Friday, the governor told analysts electricity rate increases could not be part of the solution because customers already face higher natural gas bills. 

“If we were to pass on the full cost of electricity, an initiative to eliminate deregulation would pass in a heartbeat,” he said. 

From the moment that initiative qualified until court challenges were resolved, no power plants would be built in the state, worsening the electricity shortage, Davis said. 

Several consumer groups are threatening action at the ballot box in 2002 if Davis’ power plan causes electricity rates to rise. 

Davis has insisted the plan can be accomplished within the current rates, including a 7 to 15 percent temporary increase approved by the Public Utilities Commission in December and a 10 percent rise scheduled a year from now, when a previous rate cut is to expire. 

“I think the governor’s right,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. “We wouldn’t have to do an initiative if he would take the actions necessary to bring these profiteers and utility companies under public control.” 

Financial analysts question whether California’s crisis can be resolved without rate increases. 

“Other states seem to be able to handle the idea of a rate increases, dramatic rate increases, to avoid such things happening,” said Richard Cortright of Standard & Poor’s. 

He said he was surprised Davis failed to tell the analysts exactly how his plan would be financed, leaving it “a big mystery.” 

“If it’s politically impossible to raise rates, how is it possible to strike a working deal so all the governor’s goals will be met?” Cortright asked. 

Bear, Stearns & Co. Inc., called Davis’ proposals “stopgap measures at best,” adding: “We saw no information presented which solved the main issue of rate structure reform.” 

Davis also told analysts “a couple” of electricity suppliers have volunteered to accept less than the full amounts the utilities owe them. 

Davis spokesman Steve Maviglio said the governor is not disclosing the names of the suppliers or the amounts involved. 

Davis told analysts the suppliers are likely to capitulate because they want to sign lucrative long-term power contracts with the state. 

“These people didn’t fall off the turnip truck,” Davis said. 

However, several major suppliers, Duke Energy and Reliant Energy among them, said Friday that they want the full amounts the utilities owe them. 

Reliant, owed more than $300 million, would not “voluntarily offer to take partial payment” for electricity provided under legal contracts, spokesman Richard Wheatley said. 

S&P’s Cortright said he is skeptical generators would accept less than the full amounts, and wonders why Davis risks alienating them with his criticism. 

“These are the guys he really needs to stick with California to build the generating plants,” Cortright said. 

Davis spokesman Maviglio said a deal might be complete early next week to buy the San Diego utility’s transmission lines. Davis told Wall Street analysts the purchase price will probably be $700 million. 

A week ago, Davis announced a tentative agreement to buy Edison’s lines for an estimated $2.7 billion. 

It has not been as easy to persuade PG&E to part with its lines and an agreement could be several weeks away, Davis told the analysts. 

“I think their initial opposition to selling transmission lines is more emotional than financial,” Davis said. “These are not big money makers for PG&E. But they think this is their soul, their core.” 

PG&E spokesman Ron Low declined to comment on the negotiations. 

The state ended its work week as it began — with enough electricity for grid managers to avoid reviving the power alerts that have been a nearly constant part of California life for the past two months. 

——— 

On the Net: 

California Independent System Operator: www.caiso.com