Senate OKs Forming State Power Agency

In a measure that could open the way for California to own power plants, the state Senate on Tuesday voted to create a state public power authority that would generate electricity and sell it at or near cost to consumers.

The action came as the chief negotiators for Gov. Gray Davis--San Francisco attorney Michael Kahn and former Edison executive Michael Peevey--negotiated behind closed doors with Pacific Gas & Electric and Southern California Edison executives over Davis’ plan to rescue the utilities from billions of dollars in debt.

Davis spokesman Steve Maviglio characterized the San Francisco talks as “tough,” and said he expects they will go on for several more days. The governor announced a plan Friday to give the utilities cash in exchange for the state’s power transmission grid and other assets.

One of the sticking points is the price for the grid. Edison has valued its share of the grid alone at $6 billion, while PG&E; executives are balking at parting with their share of the system.

While the talks continue, the Senate approved a bill that supporters said would give the state greater control over its energy. In a party-line 24-14 vote, Democrats overwhelmed Republican opponents and sent the bill, SB6x, by Senate leader John Burton (D-San Francisco) to the Assembly.

The bill would establish the power agency and authorize it to sell $5 billion in revenue bonds--to be used to build, buy and own power plants. The state could operate them or form partnerships with private companies.

The authority also would help finance energy efficiency and conservation programs and help pay for environmental improvements at existing power plants.

Burton did not seek approval of a second measure that would authorize the state to buy the transmission system owned by private utilities, including Edison and PG&E.; Both companies say they are near bankruptcy.

Burton said he plans to seek approval of the transmission grid plan once he gets a clearer picture of the progress of talks between Davis and executives of Edison and PG&E.;

California already is buying power, and has plans to finance power purchases by selling $10 billion in bonds. But Burton said state ownership of power plants would drive down prices charged by what he called “gouging” wholesalers. Such prices are blamed in part for bringing Edison and PG&E; to the brink of bankruptcy.

Burton specifically targeted wholesalers in Texas and Oklahoma, whom he accused of “gouging us these many months.” He said Californians would welcome cheaper power produced by state government.

But Sen. Tom McClintock (R-Thousand Oaks) said the Los Angeles Department of Water and Power, a public power entity, shares in the blame for inflating prices it charges the state for surplus power.

“Public power authorities do not insulate against price gouging. The biggest price gouger in this entire crisis has been the Los Angeles Department of Water and Power,” McClintock said.

DWP spokesman Eric Tharp denied that the agency had engaged in gouging, saying that the price of its surplus power is based on the utility’s costs. Tharp said he knew of cases in which California had paid more than twice as much for energy to out-of-state sellers as it had to the city department. (State officials keep pricing information confidential for competitive reasons.)

Burton argued that several states, including New York under Republican Gov. George Pataki, operate public power authorities similar to the one proposed for California.

“The concept is not a partisan one,” Burton said.

But Republicans swatted such claims aside. They charged that a new state bureaucracy would fail to generate enough supply to meet demands and would drive away potential investments in generators by private capital.

“Are we going to use taxpayers’ dollars to build more power or private dollars to build more power?” said Sen. Ray Haynes (R-Riverside). “I happen to believe private dollars are the better way to do it.”

But Democrats asserted that under deregulation the electricity crisis in California has become so severe that government must intervene to protect ratepayers.

Another Democrat, Sen. Steve Peace (D-El Cajon), a leading advocate of the deregulation system, lashed out at federal energy regulators and Southwestern wholesalers.

He urged government seizure of California power plants owned by Texas companies, saying that this was “the only choice the kidnappers have given us.” Either that, he said, or “raise the Lone Star flag to the top of the Capitol.”

In other developments:

* Tuesday was the first workday in more than a month on which California was not under the cloud of a Stage 3 electricity alert, which allows the operators of the state’s power grid to impose rolling blackouts. After 32 consecutive days, the alert was lifted at midnight Friday as the state eased into the holiday weekend, a time when many factories and large institutions shut down and energy demand declines.

The state also got a boost when some power plants resumed generation after being shut for maintenance or repairs, said Patrick Dorinson, a spokesman for the California Independent System Operator, which runs the grid.

* CalEnergy Operating Corp., which runs eight geothermal plants near the Salton Sea, sued Southern California Edison, seeking $45 million in payments for November and December power deliveries. It also asks that the company be allowed to sell the power it produces to another buyer.

Edison spokesman Steve Hansen declined comment.

Edison had withheld $529 million in payments to alternative energy producers such as CalEnergy as of Jan. 31, while PG&E; had withheld about $387 million in payments. The CalEnergy lawsuit marks at least the second time this month that an alternative energy producer has sued a utility for back payment.

In other legal action, a state appellate court Tuesday denied a petition filed by Edison seeking to have the court order the Public Utilities Commission to set new, lower rates for alternative energy producers.

Lawyers for Edison contended in court papers that the formula used to calculate the rates is flawed and that if it is left unchanged it will force the company to pay the producers $420 million more than required by federal law for December, January and February deliveries.

* Southern California Edison and its parent company, Edison International, won more time from their banks to make good on millions of dollars in unpaid bills, said Jim Scilacci, chief financial officer of the Rosemead utility. Edison and the parent firm received an extension on forbearance agreements with the bank groups on two out of three credit lines, which went into default because the utility failed to make payments on some notes that are backed by those credit lines.

Scilacci declined to say how long the forbearance would last. Negotiations continue on the third credit line, a five-year agreement, he said.

* A Los Angeles federal judge told energy-generating companies that he intends to let the Federal Energy Regulatory Commission decide how to distribute millions of dollars worth of their collateral that is being held by the California Power Exchange to cover unpaid debts of Edison and PG&E.; Under exchange rules, participants are responsible for fellow members’ defaults.

“Essentially, I want to maintain the status quo, keeping the money where it is until FERC can decide the proper allocation,” U.S. District Judge Carlos R. Moreno said as he extended a temporary restraining order he issued last week barring the exchange from dispensing any of the money. Moreno said he plans to issue a preliminary injunction Thursday covering all of the pending cases.

*

Times staff writers Mitchell Landsberg, Julie Tamaki, David Rosenzweig and Nancy Rivera Brooks contributed to this story.