State Approves Bond Sale to Pay for Power

Bowing to the grim realities of California’s energy crisis, Gov. Gray Davis signed legislation Thursday that authorizes the state to sell up to $10 billion in bonds--about $300 of debt for every person in the state--to buy electricity that private utilities can no longer afford.

Also, in a step that has few antecedents in peacetime, Davis issued an emergency order requiring California retailers to cut their outdoor lighting in half or face fines of up to $1,000 for every violation.

The extraordinary one-two punch, which followed an intense debate and razor-thin victory in the state Assembly for Davis’ power-purchase plan, was designed to reestablish some control over a renegade electricity market and begin the long process of fixing it.

“I’m assuring everyone that California can and will pay its bills,” Davis said, as he prepared to head to the Pacific Northwest for a critical energy summit with fellow Western governors and Vice President Dick Cheney.

The legislation allows the state government to purchase about a third of California’s total demand for electricity for years to come. Davis optimistically predicted that the new law will “allow us to resolve our energy challenges without raising rates.”

However, the measure includes a provision that could raise rates for the majority of Californians who use more than 130% of the state’s “baseline” allotment for energy consumption.

Customers served by the Los Angeles Department of Water and Power and other municipally owned utilities--which still produce and sell their own power--will not be subject to rate hikes.

Davis called for an additional $404 million in conservation measures--pushing the state’s total conservation spending to $800 million this year--with a goal of cutting consumption by 10%. The plan will include a $20-million television ad campaign urging Californians to conserve electricity.

The combined actions, the governor said, are the “first critical steps on the road to recovery.”

The bill signed Thursday attempts to steer California out of its current dilemma--in which it is forced to buy power on the volatile spot market--by authorizing that the state enter into presumably cheaper long-term contracts to purchase electricity.

Introduced by Assemblyman Fred Keeley (D-Boulder Creek), the legislation will allow the state to issue $10 billion in bonds to begin purchasing power, which will then be sold to customers of privately owned utilities. It provides $496 million from the state’s budget reserves to get the program started. That and the bonds are both to be paid off over time by ratepayers.

The Assembly approved the bill Thursday afternoon, only hours after failing in frustration in the dead of night. It passed by the slimmest possible two-thirds margin, 54-25, after Davis, Assembly Speaker Bob Hertzberg (D-Sherman Oaks), Sen. Dianne Feinstein and other high-powered politicians succeeded in persuading a reluctant Democrat and two Republicans to change their votes.

The bill was signed by Davis shortly afterward and immediately went into law.

Consumer groups reacted with anger and bitterness.

“This is the biggest bailout since the S&L; crisis,” said Jamie Court, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “We see this as a bailout because the taxpayer is stepping in to take over the obligation of the [utility] shareholders.”

Unless lawmakers pass legislation that protects residential ratepayers from increases and creates a public power authority, “we will go to the ballot in 2002 to give them a better choice,” Court said. “This is a day I feel ashamed to be a Californian.”

Even the legislators who voted for the bill by and large considered it a flawed measure. But many expressed a common view: With the state’s two largest utilities unable to purchase power, there was no other long-term fix to keep electricity flowing and avoid economic disaster.

“There are no victories here,” said Assemblywoman Hannah-Beth Jackson (D-Santa Barbara). “You can’t win in a negotiation where there is a gun to your head. You just try to come out alive.”

California utilities have been in trouble since last summer, when circumstances converged to threaten the flow of power. Record heat kept air-conditioners running overtime; an economic expansion added megawatts to the state’s energy demand; the price of natural gas--the fuel used in most California power plants--rose sharply;and an unusual number of power plants were shut down for repairs.

The result: a slow-motion disaster that unexpectedly continued into the winter months as power plants continued to shut down and electricity prices continued to rise in the state’s newly deregulated market. Southern California Edison and Pacific Gas & Electric, forbidden by deregulation rules from passing along the price hikes to their customers, stumbled toward bankruptcy.

To counter the ebbs and flows of electricity prices, Davis said the state will undertake conservation measures that include $75 million in rebates to people who trade in old appliances for new, more efficient ones, and $95 million in incentives to businesses to install energy-saving equipment.

The flip side of those incentives is the order that retail businesses--everything from supermarkets to car dealers--shut off half their lights. Initially, it will be voluntary. But after 45 days, it will become mandatory--and businesses that refuse to comply could face hefty fines. Officials will work on details of the plan in weeks to come.

“The citation answer is the appropriate answer,” said Los Angeles County Sheriff Lee Baca, who attended Davis’ news conference with several other law enforcement officials and promised to enforce it.

Baca said he doubts public safety will be threatened if businesses shut off half their lights. But he said Los Angeles deputies will be flexible.

“Certain businesses have individual public safety issues, such as auto dealerships,” Baca said. “Those particular businesses will have to reasonably do what they think is best. Our initial interpretation is to be flexible.”

The panoply of actions came on the 17th consecutive day of a Stage 3 electricity emergency in California.

In Washington, two consumer groups urged President Bush to become more aggressively involved in solving the crisis, contending that federal policies have failed to create a workable national energy market.

In a letter to the president, the Consumer Federation of America and Consumers Union urged him to “take immediate steps to prevent monopolistic manipulation of energy supply and distribution from harming consumers.”

Many consumer advocates have argued that energy producers and sellers have created a phony shortage so they could jack up prices and take advantage of flaws in California’s deregulated marketplace.

The groups said federal regulators should cap wholesale electricity rates “until there are truly competitive markets”--the same plea that Davis has made.

With the steps taken Thursday, Davis armed himself with evidence that California is trying to solve the energy crisis--ammunition he will need when he meets in Portland today with other Western governors and Bush administration officials.

Had the power-purchase bill failed, as it nearly did, Davis would have had to show up empty-handed. And he would have had to answer questions about his leadership ability after failing to shepherd what may have been the most important bill of his tenure.

Before its near-death experience in the Assembly, the measure cleared the Senate with the minimum number of votes required after encountering significant opposition from Republicans. But the opposition from Assembly Republicans was more sudden, and proved to be more serious, momentarily placing the future of the state’s energy plan in doubt.

Officials in other Western states have criticized California for drawing off their power, and for not taking strong enough steps to solve its own problem. Davis noted that California ranks 47th in per capita energy consumption, according to the U.S. Department of Energy, and said the steps he took on Thursday will help stabilize the state’s dysfunctional energy system.

“While there are tensions and nervousness, the West has more in common than divides us,” Davis said.

Bush has rejected Davis’ call for caps on the wholesale price of power. But Davis said he hopes the Western governors will sign a statement urging the Republican president to agree to “cost-plus pricing.” Essentially, generators would be entitled to payment for the cost of producing power, plus an agreed-upon profit.

“I fully expect that we all come out asking the federal government for some limitation on wholesale prices on the spot market in the future,” Davis said.

Davis said he has directed S. David Freeman and Michael Peevey, who are negotiating on the state’s behalf for electricity with power generators, to sign contracts by Monday. That is one day before the expiration of a federal emergency order requiring generators to sell power to California.

Before the Assembly’s rescue plan passed, Edison International shares closed 11 cents higher, at $13.45, and PG&E; Corp. added 6 cents to $14.31. The stocks of the two parent companies have risen this week on expectations of new legislation and diminishing fears that the utilities are heading into bankruptcy.

Nevertheless, the utilities continue to hoard cash until their finances are back on track. PG&E; said Thursday that it would pay only 15% of its outstanding debt to several power generators, the California Power Exchange and the California Independent System Operator, which manage most of the state’s power grid.

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Times staff writers Henry Fuhrmann, Mitchell Landsberg and Richard Simon, and the Associated Press, contributed to this report.