Hole in the Treasury

California faces two critical money problems as the air conditioning season sets in: the outrageous cost of electric power and the plundering of the state budget to pay for it.

Only Washington has the authority to regulate wholesale power prices, and the Federal Energy Regulatory Commission struggled for hours Wednesday before coming up with a dubious control plan. The commission again rejected what really is needed--a firm regionwide cap on wholesale prices that still gives the power generators a handsome profit.

FERC’s failure doesn’t mean the state can slacken its own efforts. The outflow of money must be stopped soon if the state is to maintain its fiscal integrity and pay for education, public safety and other basic state programs. There was a partial solution on the table this week in Sacramento, a way to arrange financing to repay the state budget much of the estimated $5.2 billion spent so far on daily purchases of power. But it went nowhere because Republicans in the state Assembly refuse to vote for the legislation until Gov. Gray Davis coughs up more details on how it was spent. Both sides are in the wrong, and the state will suffer for their stubbornness.

The problem is getting dramatically worse. Through the winter, the state spent about $50 million a day from general tax revenues for electric power that the private utilities were too broke to buy. That figure soared to more than $90 million Wednesday as air conditioners were turned on during unseasonable heat.

The emergency legislation that is stuck in the Assembly would give state Treasurer Phil Angelides authority to issue up to $10 billion worth of revenue bonds. Legislators already approved this once, but it got hung up on a technicality. The bill, SB 31x, would also allow Angelides to complete a $4.1-billion bridge loan to begin paying back the state budget. The legislation requires a two-thirds vote in order to go into effect immediately, meaning that the Republican minority can block passage until Davis discloses how much has been spent and for exactly what.

The governor’s office, even as it says the bond need has risen to $12.4 billion, insists that the details remain confidential so the state can maintain bargaining leverage with the power companies. The Republicans are not unreasonable in wanting more information to support the bond request. Everyone is asking the same questions of Davis. It’s also not unreasonable for them to vote for the $10 billion they approved once before. The Legislature then could consider additional financing later as the need was documented by the governor’s office.

Davis promises that all the general fund money will be paid back by the end of the fiscal year June 30. That is a promise that must be kept, though of course everyone should keep in mind that the bonds will be paid off by consumers out of increased utility rates.

Only when the revenue bonds are sold can the state stop paying for electric power out of the general fund. This drain on the state treasury was acceptable in an emergency but must not become business as usual, because of the harm it is doing to the state’s credit-worthiness. The lower the credit rating drops, the less the state can do with the money it has left. It’s a downward spiral that must stop.