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SACRAMENTO — Gov. Gray Davis for the first time Thursday endorsed rate increases for customers of two strapped utilities, while urging conservation and defending his handling of the state’s energy crisis. 

Davis, addressing Californians in a televised speech, also lashed out at federal regulators for refusing to cap soaring wholesale electricity prices that have pushed the state’s two largest utilities close to bankruptcy. 

“In January, with the feds still refusing to do their job, California stepped in to purchase the power the utilities could no longer afford to buy,” Davis said. “We didn’t take over to save the utilities. We took over to keep the power on and the economy strong.” 

California has been hit by severe electricity shortages and rolling blackouts the past few months. The problem is blamed on several factors, including deregulation of California’s electric industry that did not let investor-owned utilities recoup rising costs from customers. 

Davis, who repeatedly has said the state can resolve the power problems without rate hikes, told viewers he now thinks rate increases are necessary. 

His new stance comes after the state Public Utilities Commission last week approved rate increases of up to 46 percent for customers of Southern California Edison and Pacific Gas & Electric Co. 

The commission has not yet decided how to spread the rate increases among the utilities’ customers. 

Davis said he will propose a tiered rate plan that will mean a 26.5 percent rate increase for the average Edison or PG&E customer. Under the governor’s plan, the heaviest power users would see an average 34.5 percent rate increase. 

“The more you use, the more you pay,” he said. “Conservation is our best short-term weapon against blackouts and price gouging.” 

Edison and PG&E customers already saw rate hikes of 9 to 15 percent in January. Another increase of 10 percent is scheduled for next year. The governor’s plan assumes that rate increase will take effect. 

According to the Davis administration, the governor’s plan would let Edison, PG&E and the state’s third investor-owned utility, San Diego Gas & Electric, make a total of $8 billion in debt payments over a decade. 

Davis’ plan would shift the burden of the PUC rate increase to heavier residential, commercial and industrial power users while largely sparing agricultural users, who would only see increases of 5 to 15 percent. 

“We are going to take the governor’s proposal under advisement and give it a lot of weight, I suspect,” PUC Commissioner Carl Wood said, adding that he expects a commission decision within the next 45 days. 

Davis said the state’s power crunch and high wholesale costs are the result of a “flawed deregulation scheme” signed into law in 1996 by then-Republican Gov. Pete Wilson. 

Edison, PG&E and the San Diego utility say they have lost more than $14 billion since June due to soaring wholesale power costs. 

More than $13 billion of that comes from Edison and PG&E, who have been barred under the state’s deregulation law from recovering the rising costs from their customers. 

The state began buying power for all three utilities in early January and has dedicated $4.7 billion in taxpayer money to the purchases since January. That money will eventually be recouped from ratepayers. 

Davis urged Californians to help cut power use 10 percent to fend off rolling blackouts this summer, when residents will turn on their air conditioners and demand will rise sharply. 

The Legislature on Thursday afternoon sent Davis proposals that would spend $1.1 billion on conservation programs for consumers and businesses. Davis plans to sign the measures next week. 

Davis – facing mounting pressure from Republicans and fellow Democrats to resolve California’s energy crisis – delivered his speech from behind a desk, with his hands clasped in front of him. 

He assured residents the state will survive the crisis. 

“We are Californians. We’ve withstood earthquakes, floods, fires and droughts,” Davis said. “Yes, this is man-made, but with your help and God’s blessing, we’ll get through this as well.” 

He said he would stand by his plan to help restore the utilities to financial health by negotiating state acquisition of their transmission lines.  

Davis said his plan would require them to sell low-cost power to the state for a decade and drop lawsuits seeking to double their electric rates. 

PG&E, which unlike Edison has yet to agree to a transmission deal in principle, said Davis’ speech fails to offer a “comprehensive solution” to the energy crisis. 

Davis urged Californians to help cut power use 10 percent to fend off rolling blackouts this summer, when residents will crank their air conditioners and demand will rise sharply. 

The Legislature on Thursday afternoon sent Davis proposals that would spend $1.1 billion on conservation programs for consumers and businesses. Davis plans to sign the measures. 

He listed actions he has taken to try to solve the power crisis, including negotiating long-term contracts to purchase power and trying to speed power plant construction. 

The speech, the first such message Davis has delivered besides his annual State of the State address, comes as the GOP and even fellow Democrats criticize the governor’s handling of the crisis. 

Consumer groups, angered by the rate increases, are promising a revolt at the polls in 2002, planning to roll back the rate hikes through an initiative that would share the ballot with Davis, who is up for re-election then. 

Consumer advocate Harvey Rosenfield said Davis is failing to protect utility customers. He compared power suppliers to blackmailers charging an “extortionary price for electricity.” 

“Nothing the governor has said tonight will do anything to stop the profiteers,” said Rosenfield of the Foundation for Consumer and Taxpayer Rights in Santa Monica. 

Power supplier Duke Energy said it has done nothing wrong and doesn’t deserve criticism for the wholesale prices. 

“We are running our power plants at historically high levels to keep consumers’ lights on,” Duke said in a written statement. 

What's Next: 

• The Davis administration continues negotiations with Edison, PG&E and San Diego Gas & Electric Co. over state acquisition of their  

transmission lines. 

• FERC holds a conference Tuesday in Boise, Idaho, on Western 

energy issues. 

• Edison and PG&E are expected to file their 2000 earnings reports April 17. 

• The Assembly plans to resume hearings in its inquiry into  

California’s highest-in-the-nation natural gas prices April 18. 

The problem: 

• High demand, high wholesale energy costs, transmission glitches and a tight supply worsened by scarce hydroelectric power in the  

Northwest and maintenance at aging California power plants are all  

factors in California’s electricity crisis. 

• Edison and PG&E say they’ve lost nearly $14 billion since June to high wholesale prices that the state’s electricity deregulation law bars them from passing onto ratepayers, and are close to bankruptcy. 

• The Public Utilities Commission has raised rates up to 46 percent to help finance the state’s multibillion-dollar power-buying. 

• Even before those increases, California residents paid some of the highest prices in the nation for electricity. Federal statistics from October show residential customers in California paid an average of 10.7 cents per kilowatt hour, or 26 percent more than the nationwide average of 8.5 cents. Only customers in New England, New York, Alaska and Hawaii paid more. 

The 72-0 roll call by which the California Assembly voted Thursday to approve an energy conservation bill by  

Sen. Byron Sher, D-Stanford. 

Asemblymember Aroner (Berkeley) :Yes 

State Sen. Perata (Oakland): Yes 

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On the Net: 

www.governor.ca.gov 

Read the conservation legislation, SB5x by Sher and AB29x by Kehoe, at www.sen.ca.gov