Challenging Issues Still Unsettled

Now that the warm-up is over, the hard work begins.

After long hours of speechifying, committee hearings and infighting, the Legislature on Thursday finally approved California’s long-term purchase of electricity. Nothing about the bill was easy. It could require that California sell $10 billion worth of debt to finance the power purchases. It could result in some rate increases. But that may have been easy compared with what lies ahead.

* Utility bankruptcy: Gov. Gray Davis and California lawmakers must decide whether the state will take steps to help Southern California Edison and Pacific Gas & Electric avoid bankruptcy, something that Davis and many lawmakers say is vital.

Davis said Thursday he believes the state must act by Feb. 12, when a federal judge in Los Angeles will hear Edison’s lawsuit alleging that the state must allow the utility to pass on the full cost of skyrocketing wholesale electricity prices. If Edison wins, experts say, consumers and businesses could be socked with hundreds of dollars each in higher bills.

The measures to help the utilities--and give the state some utility assets in return--will be spelled out in AB 18X by Assembly Speaker Bob Hertzberg (D-Sherman Oaks). Although the specifics have not been determined, the help could come in the form of money--earmarked out of electricity customer bills--to pay down part of the utilities’ debt, estimated to be between $6 billion and $12.7 billion. The utilities oppose relinquishing any warrants, power plants or other holdings.

* Power contracts: Los Angeles Department of Water and Power chief S. David Freeman and former utility executive Michael Peevey, who are negotiating on the state’s behalf for electricity with power generators, must sign contracts with the generators by Monday.

On Tuesday, a federal emergency order requiring generators to sell power to California expires, and Davis says the state cannot expect the Bush administration to extend the order. The state is issuing a new call for generators to submit more bids to sell it electricity.

The price that Freeman and Peevey negotiate for the long term is important because it will determine whether consumers will have rate increases. Davis maintains that the crisis can be solved without raising rates.

* New generators: As the crisis has escalated, the state is under increasing pressure to approve new power plants. Davis plans to hold a news conference next week to outline his plan for getting more generators built quickly. He is likely to announce steps that will ease some environmental restrictions, and perhaps specify government-owned land where plants could be built. Republicans are urging that Davis waive environmental restrictions on power plant construction, increase natural gas exploration, and locate new power plants on former military bases.

Several lawmakers, including the Democratic and Republican leaders of the Senate and Assembly, are urging that the California Energy Commission, made up of Davis appointees, overrule the San Jose City Council and permit construction of a power plant near where Cisco Systems plans to open a major facility.

Six power plants are under construction. The Davis administration has approved licenses for nine others, and 14 are being reviewed.

* Conservation: The quickest way to increase the supply of electricity is to cut demand by conservation. Davis proposed a $400-million addition to the state’s conservation program, doubling the amount that California spends to promote energy efficiency. However, lawmakers have more ambitious plans.

Sen. Byron Sher (D-Stanford) has introduced legislation--SB 5X--to spend nearly $1 billion on conservation measures, including $50 million for new air conditioners, $60 million to help low-income people weatherproof their homes and $25 million to buy energy-efficient appliances. Republicans and Democrats are likely to support most of the conservation steps.