Summit Aims to Ease Power Crisis

Federal, state and corporate leaders convene in Washington today in yet another effort to ease the energy crunch that has threatened to make 2000 the year the Christmas lights went out in California.

Appropriately enough, the remedy being discussed at the summit sponsored by the Federal Energy Regulatory Commission is called hedging--a term that suggests the high-stakes poker table at which California consumers have found themselves unwillingly seated in this season of holiday cheer and wildly soaring electricity prices.

The governor’s office continued negotiations Monday with the state’s two largest investor-owned utilities, Southern California Edison and Pacific Gas & Electric, over the possibility of raising electricity rates charged to consumers. The companies are looking for a deal that will help them avoid deeper financial troubles.

Under deregulation, the utilities must buy power they once produced themselves.

Tossing another chip into the pot was Gov. Gray Davis, whose rhetoric has been escalating in recent days as he positions himself as a guardian of consumer pocketbooks.

On Monday, he told a television interviewer who asked about possible utility bankruptcies that Edison might not make it through the week. He also threatened more extreme measures to manage the crisis, to be announced in coming days.

An Edison spokesman said the company had no comment on the governor’s remarks. On Friday, however, Edison said it is having serious but not fatal financial problems.

“We have not used the B-word,” Edison International Chairman John Bryson said, adding that “we have fairly substantial cash today.”

The state was placed on a Stage 1 power alert Monday, the first called since Thursday, but officials said the supply crisis appeared to be ebbing slightly. They predicted better days ahead as a combination of unseasonably warm weather and vacations at schools and offices help to lessen demand for electricity.

A Stage 1 alert is called when power reserves are expected to fall below 7% of the electricity grid’s capacity for 75% of the state. A Stage 2 alert is called when reserves are expected to dip below 5%, and a Stage 3--which can include rolling blackouts--is called when they are expected to go below 1.5%.

U.S. Sen. Dianne Feinstein (D-Calif.) called today’s meeting in Washington the “last remaining hope” of solving the crisis, which has repeatedly brought the state to the brink of rolling blackouts, and has cost utilities billions of dollars.

But Steve Maviglio, a spokesman for Davis, said consumers shouldn’t get their hopes too high. “The governor believes there’s not a silver bullet that’s going to solve this crisis,” he said.

At its meeting, the federal energy panel planned to bring together representatives of utilities, power plants, energy marketers, the state’s grid operating agency and the California Public Utilities Commission.

They are expected to gather before an administrative law judge to discuss long-term contracting for electricity, which is seen as a way for utilities to lock in reasonable rates rather than take a risky plunge into the overheated electricity market.

From $30 to $1,000 Per Megawatt-Hour

The price of electricity in California has soared in the past year, unchecked by federal regulators. The utilities are barred under deregulation from hiking consumer bills until 2002--a restriction they want the PUC to lift.

California’s Legislature voted in 1996 to deregulate its electricity market in the belief that prices would fall in a free market. When the opposite occurred, and prices soared from $30 per megawatt-hour last December to more than $1,000 last week, some blamed deregulation, while others said there was nothing wrong with the concept, just the execution.

Under the system created by the Legislature, investor-owned utilities such as Edison, PG&E; and San Diego Gas & Electric were required to purchase most of their power from a central state marketplace, the Power Exchange.

Initially, they were required to buy power only on an immediate, as-needed basis, but eventually, as spot prices skyrocketed, the PUC agreed to allow some purchases to be made through longer-term contracts--the procedure known as hedging.

Unfortunately, the utilities say, by the time they were allowed to buy ahead, the price--while substantially lower than spot prices--had risen so high that they were afraid to lock in figures that would force them to either raise rates or lose money. They are looking for a better deal: lower prices and the ability to purchase directly from power generators or middlemen rather than through the Power Exchange.

That, ideally, is what they want from today’s meeting.

“This meeting will hopefully help establish more bilateral contracts between the generators and the utilities and could provide rate stability and electricity supply certainty,” Feinstein said in a statement issued by her office last week.

But even before the meeting was held, Davis and others were challenging the long-term contract price proposed by the federal commission, saying it was anything but reasonable. Davis and U.S. Energy Secretary Bill Richardson were expected to participate in the meeting by telephone.

Maviglio said the meeting is unlikely to immediately lead to any contracts being signed, especially if the federal energy commission doesn’t cut its proposed price for long-term contracts of $74 per megawatt hour.

The utilities are also hoping to persuade the state to cushion their losses by raising the rates they charge consumers.

Rate-hike negotiations began Friday and continued Monday at Davis’ behest. A source familiar with the talks said PG&E; was hoping for a 17% rate hike, an average of about $9.50 per month for Northern California customers, while the state’s position was that the increase would be no more than 10%.

At the same time, PG&E; would use profits from its hydroelectric and nuclear power plants to pay down the multibillion-dollar debt it has incurred since the summer when the wholesale cost of electricity shot upward. If such a deal were to be worked out, consumers would be paying a small share of the increased costs of electricity.

Consumer advocates say the rate boosts under discussion are unwarranted. Michael Shames, executive director of the San Diego-based Utility Consumers Action Network, said the utilities supported deregulation and should be forced to accept its downside.

“In Las Vegas, they’d give them a drink and send them on their way,” he said. “Here, they want to give them a rate increase. I’d rather give them a drink.”

Davis declined to discuss the talks in any detail. But sources said that if a deal is struck, the PUC could vote on it as early as Thursday. However, a high-ranking Edison official, speaking on condition of anonymity, said no deal is imminent.

Despite skyrocketing energy prices, Edison and PG&E; customers have avoided paying significantly higher electric bills because of a rate cap imposed as part of the 1996 legislation that deregulated electricity. That 1996 legislation gave customers a 10% rate cut, which was supposed to stay in place until 2002.

“I think it’s political suicide for the governor,” said Harvey Rosenfield, who may push an initiative for the 2002 ballot aimed at overhauling the electricity system. “People are going to call him Give-Away Gray. It will be devastating for him politically.”

David Freeman, general manager of the Los Angeles Department of Water and Power, said that based on his knowledge of the cost of wholesale electricity and the natural gas that fires many power plants, Edison would need to raise rates by 25%, possibly spread over a few years.

As a municipally owned utility, DWP itself was unaffected by deregulation and hasn’t been threatened by the power crisis.

Freeman, meeting with reporters in Sacramento, called on Davis to consider having the state enter the power business--an idea that also is being considered by Senate President Pro Tem John Burton (D-San Francisco).

“It’s time for public power to play a bigger role,” Freeman said.

Davis Talks About a Bankruptcy

Davis scheduled meetings today with Burton and Speaker Bob Hertzberg (D-Sherman Oaks). During his interview on CNBC, the governor warned that Edison is perilously close to bankruptcy.

“I’m telling you that at least one major company, Southern California Edison, is in extraordinarily difficult financial circumstances, and may not make it through the week,” Davis said in response to a reporter’s question about bankruptcies resulting from the crisis.

He reiterated his support for price caps on electricity, and scoffed at the notion that deregulation must be preserved.

“Deregulation is not the goal,” the governor said. “The goal is a strong, prosperous economy. If we see the system is not working, we have to have the wisdom to take a different tack. If you go to a doctor with a broken leg, he doesn’t say let nature take its course. He puts a cast on.

“I tried consensus; that didn’t work,” Davis said. “I tried to be polite and that didn’t work. So I’m shifting into another gear here. I’m supposed to be the steward and the guardian of California’s economy, and I’m not going to let it be dragged to its knees.”

The Democratic governor had no role in the 1996 legislation that deregulated electricity. But Freeman, the DWP chief, warned that any fix is “in his lap,” and said the utility crisis could be Davis’ undoing.

“He is used to problems where there is a middle,” Freeman said. “There ain’t no middle on this issue.”

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Times staff writer Chris Kraul contributed to this report.