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Governor Renews Criticism of Regulators

TIMES STAFF WRITERS

Gov. Gray Davis, trying to win support for California’s plan to buy a huge stretch of the state’s electrical transmission system, took a swipe Tuesday at the federal commission that must bless such a deal.

Davis noted that President Bush has an opportunity to fill two vacancies on the five-member Federal Energy Regulatory Commission and will determine its chairman.

“It is my hope,” Davis said, “that whoever the president chooses is a practical businessman or woman who lives in the real world and understands that when you inherit a mess, your job is to fix it, right the ship and move forward--as opposed to being a rigid adherent to ideology.”

Earlier this year, Bush appointed Curt Hebert Jr., a strong free-market proponent who has served on the commission since 1999, as chairman. But he can change that appointment.

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Hebert, a 38-year-old attorney and former Mississippi lawmaker, has said Davis’ plan to have California buy 32,000 miles of high-tension power lines from the state’s ailing utilities would amount to “nationalization” and might not be in the public interest.

The commission has been a strong advocate of electricity deregulation and, in addition to the dispute over purchase of the power grid, Davis has criticized its members for refusing to impose limits on soaring wholesale power prices, which bled California utilities of billions of dollars in the last nine months.

“We have practical problems we have to solve,” he said, citing the billions of dollars the utilities owe power generators and banks. “My hope is that [Bush] places people on the FERC who understand real-world considerations.”

Hebert could not be reached for comment Tuesday. The commission’s two other members, William L. Massey and Linda K. Breathitt, Democrats appointed by former President Bill Clinton, were also unavailable. There are two vacancies on the panel.

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Davis spoke after conferring for 30 minutes with U.S. Energy Secretary Spencer Abraham about the state’s proposal to help the financially ailing utilities by purchasing the power grid. He presented Abraham with a nine-page memo detailing the plan and said the energy secretary would probably give him his views on the plan by the end of the week.

Last week, the governor struck a tentative deal with Southern California Edison to buy its portion of the grid for $2.76 billion, more than twice the book value. He is working on similar deals with Pacific Gas & Electric and San Diego Gas & Electric. Utilities could use money from the sale to restructure their multibillion-dollar debt.

Although Abraham has no direct authority over the energy commission, he presumably holds influence with Bush, and Davis came away from their conversation buoyed.

“If he would endorse the plan,” Davis said, “that would be a leg up in getting FERC’s approval. . . . I hope by the end of the week he will be able to endorse the proposal or at least endorse a modified proposal that is satisfactory to us.

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“Believe me,” Davis said, “I’ve been in enough meetings to know when someone is trying to be helpful and when someone is not. [Abraham] is trying to be helpful. He wants this problem solved, and . . . I believe he will support our proposal to get Southern California Edison back into the energy business.”

Under federal law, the energy commission would have to approve California’s purchase of the steel towers and aluminum wires of its three biggest private utilities. The commission could scuttle the purchase if it determined that state ownership would harm the public interest--a legal standard that gives the agency much discretion.

Walter Ferguson, Hebert’s chief of staff, said Tuesday that Davis’ plan would get close scrutiny.

“Sure, we have to be open-minded, but I’m skeptical as to how this helps,” he said. “How does this solve the supply issue? How does this impact the region? Those two questions have got to be answered, because you don’t want to make the problem worse.”

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California’s proposal runs counter to the commission’s 2-year-old push to have transmission grids operate on a wide regional scale without heed to political boundaries. In some parts of the Midwest and South, private companies have proposed operating transmission systems for profit--a trend endorsed by Hebert.

“I assume Hebert is going to be unenthusiastic, probably very unenthusiastic [about California’s proposal],” said Richard Pierce, a George Washington University law professor who has observed the commission for decades.

“Nobody at FERC is going to be real happy about a state trying to take away from FERC jurisdiction over a large portion of a transmission grid,” he said. “I can’t imagine any commissioner will like that. So what we’re talking about is the intensity of their dislike and whether it will be so great they’ll say, ‘No, we won’t approve it.’ ”

Consumer advocates and state Senate leader John Burton (D-San Francisco) have endorsed state purchase of the transmission grid as a way to get California out from under some federal oversight. Ownership would, for example, allow the state to set the transmission fees that electricity consumers pay. Those fees now amount to about 6% of the average utility customer’s monthly bill and are overseen by the energy commission.

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Burton has also argued that state ownership would give California greater control over its own destiny should federal officials try to force the West to manage its interconnected grid under a single agency.

Federal rules already prohibit transmission grid owners from discriminating, through fees or rules, against the generators and marketers that use their lines like highways to move electricity from power plants to buyers.

Davis, in trying to win support for state purchase of the grid, has not focused on the freedom from federal regulators California might gain. Instead, he has treated the idea as a key part of a financial transaction necessary to revitalize debt-ridden utilities.

Davis said he expects that California would operate the transmission system within federal restrictions.

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“I am not looking forward to any additional regulatory burdens from FERC,” Davis said. “Obviously, we will meet the existing regulatory burden that we have.”

Whether the commission will approve a state purchase of the grid and how long it will take to reach a decision are unknown, Edison International Chief Financial Officer Ted Craver told debt holders Tuesday in a conference call. He characterized Hebert’s recent public statements on the matter as “cryptic.”

A decision by FERC on sale of the grid could take “many months,” according to research released Tuesday by Fitch Inc., a credit-rating firm.

Fitch called the tentative agreement between Edison and the state “a favorable step to avoid bankruptcy,” but noted that several hurdles remain, chiefly approval by the state Legislature and the federal commission.

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State Sen. Steve Peace (D-El Cajon) said that if the commission rejects California’s purchase of transmission lines, the state should simply condemn the property.

“It was President Bush who told Gov. Davis that California should solve this,” said Peace. “Gov. Davis is doing so. Certainly President Bush would expect the governor to use every tool at his disposal to solve it.”

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Times staff writers Richard Simon in Washington and Nancy Rivera Brooks in Los Angeles contributed to this story.

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(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Power Points

Background

The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state’s biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.

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Daily Developments

* Gov. Gray Davis said he hopes that President Bush will appoint a “practical businessman or woman” to the commission that must approve California’s plan to buy the state power grid.

* California successfully sold $982 million in bonds, a sign that the power crisis is not affecting the state’s ability to finance its debt.

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* Davis conferred with U.S. Energy Secretary Spencer Abraham about the proposed power grid purchase.

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Verbatim

“Believe me, I’ve been in enough meetings to know when someone is trying to be helpful and when someone is not. [Abraham] is trying to be helpful. He wants this problem solved. “

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-- Gov. Gray Davis

Complete package and updates at www.latimes.com/power

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* FREAKY PHYSICS

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The state’s power crisis is a magnet for people who claim to have come up with a breakthrough. C1


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