California governor says his plan will restore stability to utility industry

In this story: Legislation needed Tuesday deadline RELATED STORIES, SITES

LOS ANGELES, California (CNN) -- California Gov. Gray Davis said Sunday that his plan to make the state a major electricity broker would bring long-term stability to the troubled industry and keep utility rates from rising.

Under the plan, the state would resell the power it buys to utility companies at cost.

While leaving First AME Church in Los Angeles on Sunday, Davis told reporters the plan might be implemented within two months. The governor visited the church as part of the Martin Luther King Jr. holiday, but the electricity crisis was clearly on his mind as he exhorted members to conserve energy where they could.

VIDEO CNN's Don Knapp explains the governor's new plan Play video (QuickTime, Real or Windows Media) CNN's Greg Lamotte reports on the crippling power situation in California Play video (QuickTime, Real or Windows Media) CNN's Greg LaMotte explains the complexity of California's problem Play video (QuickTime, Real or Windows Media)     WEB EXCLUSIVE Online coverage of the energy crunch in California MESSAGE BOARD Power crisis     ALSO

California has been hit with repeated power emergencies over the summer and winter, and it came close to suffering rolling blackouts late last week.

State officials are working to settle the energy crisis by the end of the holiday weekend.

California's Legislature is expected to take up Davis' plan next Tuesday, and support for the initiative has been growing among lawmakers.

Davis noted that utility companies now buy power on the expensive spot market for roughly 30 to 35 cents a kilowatt hour, but he said the state could do better.

By buying electricity with long-term contracts, Davis said, the state could take advantage of its good credit rating and obtain cheaper rates than can California's financially troubled utilities.

"We can buy it in the five to the five and a half cent range," Davis said. "That will stabilize the energy market, allow utilities to have some breathing room to pay off their creditors, and we will do all of this without raising rates to California customers."

The plan also envisions the construction of more power plants and would encourage increased conversation measures, Davis said. Californians already are "doing a good job, but we can do more," he said.

The Clinton administration said earlier that Davis' plan would meet California's long-term energy needs and keep its two largest utilities from bankruptcy.

Representatives from power providers Pacific Gas & Electric and Southern California Edison -- the state's two largest investor-owned utilities -- declined to comment after an earlier meeting Saturday dealing with the governor's plan.

The two utilities say they have been pushed to the edge of bankruptcy because of soaring wholesale power prices and an inability to pass those costs on to consumers. They argue that temporary rate increases approved by the California Public Utilities Commission aren't high enough to help.

Douglas Heller, of The Foundation for Taxpayer and Consumer Rights, a consumer advocacy group, was wary about Davis' plan. "If the state becomes a public power agency buying electricity, will the public benefit from that?" Heller asked. "Or is it a mechanism for giving utilities their bailout?"

Davis, however, laid the blame for the current crisis on the utilities, saying the "utilities are going to have to write off some of their debt. We are not going to compensate them for mistakes of judgment they made; they were big proponents of deregulation back in 1996."

California's 1996 law deregulating the electricity market, once hailed as a model for others:

• Forced utilities to sell off much of their generating capacity.
• Prohibited them from signing long-term contracts to buy supplies.
• Barred increases in consumer rates until 2002.

Industry experts view Tuesday as a crucial deadline for settling a deal since it marks the first day that financial markets are open after the long weekend. Bond rating services and stock market traders are expected to hammer PG&E and SoCal Edison if a deal is not seen as imminent.

U.S. Treasury Secretary Lawrence Summers said state leaders had a "clear recognition" of what the situation was and would work in an "expedited" manner to complete a settlement.

A key issue in the talks is a proposal for power-generating companies -- owed billions by PG&E and Edison -- to delay seeking money for a period of 90 days pending state assurances that the debts would be paid.

Wall Street analysts and sources close to the talks said the state wants a price cap of $55 per megawatt-hour for long-term contracts, but that level may not be high enough for out-of-state generators who see $70 to $80 as more reasonable.

Wholesale power prices have increased fivefold in California since last summer, accompanied by a series of drops in the state's power reserves.

Power reserves in California dipped below 2 percent last Thursday after a storm cut production at a key nuclear station. The crisis was averted by a last-minute injection of hydropower from the federally owned Bonneville Power Administration in the Pacific Northwest.

But the Independent System Operator, which manages most of California's power grid, says electricity supplies are still tight.

CNN Correspondent Greg Lefevre, CNN Correspondent Don Knapp, The Associated Press & Reuters contributed to this report.

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System Conditions - The California ISO
California Public Utilities Commission
California Utilities Emergency Association

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