Page One

California’s power predicament grows in complexity

By Karen Gaudette Associated Press Writer
Tuesday October 02, 2001

SAN FRANCISCO — California officials agree the state’s general fund must be repaid for the nearly $9 billion the Department of Water Resources has paid for electricity, but months-long debates over the details continue to slow progress. 

Attempts to issue $12.5 billion in bonds already have been delayed until 2002 due to disputes between Gov. Gray Davis, state power regulators, the utilities, consumer advocates and business groups. 

State Treasurer Phil Angelides warned last week the state could suffer a $9.3 billion budget deficit should delays continue, and that would affect funding for other state programs. 

“We have what in many ways is a bizarre situation,” said Gary Cohen, chief counsel for the PUC. 

And the plot thickens elsewhere on the energy front: 

— Five major creditors are threatening to push a second California utility, Southern California Edison, into bankruptcy, days after Davis called lawmakers back to Sacramento to craft a rescue plan for Edison. Pacific Gas and Electric’s bankruptcy reorganization plan would remove the utility’s transmission lines, power plants and natural gas pipelines from any state regulation, which state officials say is more reason to keep Edison from following PG&E’s path. 

— The Department of Water Resources, the state agency that buys electricity for the customers of three utilities, continues to negotiate with the PUC and utilities over how much ratepayer money each utility must give the state in exchange for the power the state buys. Under the current plan, PG&E customers would pay $600 million more than Southern California utility customers, which PG&E calls an unfair shifting of rates. 

— State power regulators have asked the Federal Energy Regulatory Commission to force power companies to renegotiate long-term power contracts they signed earlier this year with the state. The contracts are now considered grossly overpriced, and could leave California energy customers paying more than twice the forecasted market rates for electricity. The DWR’s rate plan would lock in those contracts at their current rates, PUC President Loretta Lynch said Monday. 

“Our feeling is that if the contracts stay in force as they are now, they’re expensive, and it’s unlikely rates will go down,” Cohen said. 

“If the (DWR’s) rate agreement goes forward, generators have no incentives to renegotiate because we’ve guaranteed the price,” he said. 

Before the bonds are issued, the state must resolve how the people who eventually buy the bonds will be paid, whether long-term power contracts the state has locked in are fair, and whether the Public Utilities Commission must change electric rates at the request of the state without ensuring those rates are reasonable and are the result of prudent spending decisions. 

Both options currently before the state — a plan put forth by the Department of Water Resources and Senate Bill 18xx proposed by Sen. John Burton, D-San Francisco, require the PUC to rescind its authority to assume or reject rate requests. The PUC could take up the DWR’s plan at its Tuesday meeting. 

Consumer advocates, businesses, financial analysts, the state Legislature and PUC commissioners have rallied behind Burton’s bill, and PG&E already has sued the state to stop the DWR’s plan from going forward. 

Davis’ spokesman Steve Maviglio said Monday the bill is “dead on arrival” based on the treasurer’s recommendation. 

“It creates more uncertainty about the bond sale and repayment at a time when we already have economic uncertainty,” Maviglio said. If the PUC rejects the DWR’s plan Tuesday, Maviglio said it likely means the PUC would need to draft a new version. 

Lynch said Burton’s bill makes paying bondholders the first priority of ratepayer dollars, possibly garnering the state a lower interest rate and saving ratepayers money. 

“I share the goal of repaying the general fund,” Lynch said. ”18xx bonds are the ones more likely to be issued without delay or prohibition,” she said. 

Lynch acknowledged battles over who owes money to whom will continue regardless of which plan is approved.