Panel OKs Bills on State Purchase of Power Grid

Nudging government toward an expanded role in the energy business, a Senate committee Tuesday approved two far-reaching bills paving the way for the state to buy California’s sprawling electrical transmission grid and build and operate its own power plants.

The legislation aims to protect California from the crisis it faces today, a nightmare of supply shortages and sky-high power prices, said the bills’ author, Senate leader John L. Burton (D-San Francisco).

“What we’re trying to do here is give the state some influence and control over its own destiny,” Burton said. “The idea is to provide affordable, reliable energy at times we need it most.”

One of the bills authorizes Gov. Gray Davis to negotiate with California’s beleaguered utilities about a state takeover of the transmission system, a transaction that could help them avoid bankruptcy. By paying anywhere from $3 billion to $9 billion for the 32,000 miles of electric wires, the state would provide the utilities with cash to help relieve their mushrooming debt.

“Some would call it a bailout,” Burton said. “I would prefer to call it an infusion of capital.”

Davis prefers the term buyout and said any state takeover of the grid “should be a moneymaker.” Talking with reporters after a speech in Los Angeles, Davis said he hopes to announce a proposal Friday under which the state would receive the transmission system, a financial stake in the utility companies and some other asset--possibly some of the utilities’ hydroelectric facilities--in exchange for billions of dollars in state cash.

“We will insist upon receiving commensurate, equivalent value for any value we confer on the utilities,” Davis said.

The governor added that the utilities’ parent companies--which have received, among other assets, billions of dollars in tax overpayments from Southern California Edison and Pacific Gas & Electric--should help bring the utilities back to fiscal health.

Tuesday marked the 29th straight day in which California endured a Stage 3 power alert, with energy reserves critically low on the grid serving most of of the state. Grid operators came closer than usual to triggering rotating blackouts, but by the evening hours of peak demand, officials at the California Independent System Operator were optimistic that conservation and power purchases would help them dodge outages.

Cal-ISO spokesman Patrick Dorinson blamed the power shortfall on a cold snap that boosted electricity consumption and on the shutdown of power plants capable of generating one-third of the state’s winter peak demand.

Four years after electric utilities were partially deregulated in California, the state is caught in a tangle of skyrocketing energy prices, booming demand and short supplies. Battered by debt, the state’s largest investor-owned utilities lack the cash and credit to buy power themselves, forcing the state to step into the electricity market.

For more than three weeks, the state Department of Water Resources has spent an average of $45 million a day purchasing power, as negotiators work to nail down long-term power contracts under a $10-billion program authorized by the Legislature.

Davis maintains that in recent weeks the state has made major progress toward solving the electricity crisis. Officials have signed four “very good contracts” with electricity providers, begun an $800-million conservation program and embarked upon an aggressive drive to get power plants built, he said.

In other developments Tuesday, the precarious financial condition of Edison and PG&E; remained a top concern of utility-watchers as a grace period granted by banks that are owed money by Edison expired.

“We are now on a daily involuntary-bankruptcy filing watch,” said Steven Fleishman, a utility analyst with Merrill Lynch & Co. “We believe that creditors will wait to see what plan the [governor] proposes, but time is short.”

Edison formally asked a group of 23 banks for an extension of a 30-day period of forbearance on a $230-million default, Ted Craver, Edison International’s chief financial officer, said in a conference call with debt holders. The banks had not yet responded, he said.

Several electricity generators have said they are willing to wait for the utility debt-relief plan that Davis and legislators have promised in the coming days, the governor’s spokesman, Steve Maviglio, said Tuesday. “They have signaled to us that they have patience,” he said.

Most of the action in the Capitol on Tuesday centered on Burton’s two bills, both of which cleared the Senate Energy Committee and will go next to the Appropriations Committee. A third measure, SB 5X by Sen. Byron Sher (D-Stanford), which would provide $1.2 billion in taxpayer subsidies to consumers, government entities and businesses to help pay for conservation measures, also passed.

Burton said his bill paving the way for the purchase of the transmission grid, SB 33X, is based on the concept of “willing buyer, willing seller” and would not lead to any unilateral seizure of utility assets.

Although it attracted support from consumer groups, skeptics say that the system is overburdened and needs an estimated $1 billion in repairs and expansion--and that it costs several million dollars annually to maintain.

As lawmakers debated the bill, a private company quietly pressed its own bid to buy the system.

Trans-Elect Inc. has offered to pay $5.25 billion for the grid. Company Vice President Bob Mitchell was in the Capitol to pitch the idea to lawmakers, most of whom are indifferent to the notion.

“We’re not convinced that a single, for-profit, monopoly owner of the grid gains the people a lot,” said Assemblyman Bill Leonard, (R-San Bernardino).

But others said they were open to proposal: “We certainly prefer to keep the transmission grid in the private sector where it belongs,” said Jamie Fisfis, spokesman for Republican Assembly leader Bill Campbell (R-Villa Park).

The other Burton bill approved Tuesday, SB 6X, seeks to create a California consumer power and conservation financing authority that would build, finance and run power plants alone or in partnership with private generators.

The new agency would be financed by the sale of up to $5 billion in bonds, which would be repaid by revenues from power sales. The bill also would empower the state to take over private plants by condemnation.

Several other states, including New York, operate public generation and transmission facilities, Burton said, adding that they provide electricity at favorable rates.

Burton insisted that the agency would “supplement” but not take over the electricity business that traditionally has been a private-sector enterprise in California. He predicted that the state would involve itself mostly in “peaking” generators--portable generators about the size of big-rig trucks--whose energy would be tapped during periods of short supply but high demand, such as hot summers and cold winters.

But GOP Sens. Charles Poochigian of Fresno and William Morrow of Oceanside voiced fears that the public energy agency would be too dominant and could disadvantage private generators with its power of condemnation.

“This bill is pretty much sending a large, bright red flag,” Morrow told Burton.

Lobbyists for the power generators, testifying before the committee, agreed that a public power authority could scare off private investors reluctant to compete with the state.

“That type of uncertainty, about the state’s role in this system . . . can have the role of discouraging private capital,” said Mike Day, a lobbyist for Enron Corp.

In another development Tuesday, state officials working to fire up new power plants to add 5,000 megawatts of electricity by this summer raised the possibility that the new generators might not be adequate to meet demand.

Winston Hicox, director of the California Environmental Protection Agency, said the gap between supply and demand could be greater than 5,000 megawatts this summer, given that other Western states probably won’t be sending as much electricity to California, and that the state’s own production of hydroelectric power might be low.

Calling conservation steps “incredibly important,” Hicox said the state needs to cut use by at least 7% to avoid blackouts.

Meanwhile, the California Republican Party said it will begin airing a second radio ad today blasting Davis, a Democrat, for his handling of the energy crisis. Unlike the first ad, which ran in smaller markets on conservative radio stations, the new ad will run in Los Angeles and San Francisco on mainstream stations, said a party spokesman.

On the federal level, President Bush said Tuesday that he intends to discuss California’s power needs and other energy policy issues in his talks Friday with President Vicente Fox of Mexico.

They will talk “about improving the power plants to be able to help additional power get into the Western grid,” Bush told reporters aboard Air Force One on a flight back to Washington after visiting the Norfolk, Va., Naval Base.

Bush said he also intends to discuss the flow of natural gas between the two countries, specifically the issue of California natural gas flowing to Mexican power plants.

“It’s conceivable that that gas will be interrupted, and it will create, obviously, a problem for our neighbors to the south,” Bush said. “But gas can flow both ways. And any gas down in Mexico that improves the Mexican situation will help America.”

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Ingram and Warren reported from Sacramento and Landsberg from Los Angeles. Times staff writers Miguel Bustillo, Dan Morain, Rone Tempest and Nancy Vogel contributed from Sacramento. Nancy Rivera Brooks contributed from Los Angeles and James Gerstenzang from Washington.

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