Special Legislative Session to Tackle Electricity Crisis

As the California Public Utilities Commission prepares this week to raise the cost of electricity to consumers, state lawmakers will convene an emergency session likely to generate a wave of energy legislation.

Democratic leaders in the Assembly and Senate--where their parties hold strong majorities--say they will push for the state to reassert its authority in the frazzled deregulated market, where soaring wholesale electricity prices threaten to increase some customer bills as much as 76% in the months ahead.

“Selling electricity is like selling air. It’s not your usual commodity,” said Assembly Speaker Bob Hertzberg (D-Sherman Oaks), defending the need for more government intervention. “. . . Whatever we do has to take into account the welfare of the consumer.”

The historic decision four years ago to deregulate California’s electricity market--billed as a boon to consumers--has so far yielded threats of blackouts and higher prices.

Although there is bipartisan concern, the solutions envisioned by each side vary widely, reflecting differing views about the role of government in regulating business.

Republicans narrowly controlled the Assembly and held the governorship when deregulation was approved in 1996. But Democrats now hold the political power, and they are expected to dominate a special session called by Gov. Gray Davis. Any legislation approved will take effect within 90 days, unlike most bills, which do not become law until the following year.

In one of the more far-reaching measures, state Senate President Pro Tem John Burton (D-San Francisco) is proposing that the state take over electricity transmission lines, a step that would give California more control over energy prices but also represent an unprecedented level of government intervention.

The money the state would pay utilities to gain control of the lines could help bail the companies out of their debt, now pegged at $9 billion and growing. Burton also has suggested that consumers receive some benefit from the expected rate hikes, perhaps in the form of stock options in the utility companies.

Other Democrats have talked of getting the state into the energy-generating business, buying and building hydroelectric plants or other electricity producers.

Assemblyman Fred Keeley (D-Boulder Creek) has suggested that the state buy Pacific Gas & Electric’s and Southern California Edison’s hydroelectric systems, a move that could infuse the utilities with $4 billion to $6 billion in cash. It also would give the state control of powerhouses and dams critical for electricity, as well as a larger say over the protection of rivers in the Sierra Nevada.

The Legislature could also have the state issue billions of dollars in bonds to help utilities continue to buy power, and have them repaid over a decade by utility customers.

Hertzberg sees several options for spurring construction of new power plants, including government incentives and partnerships among private power generators and public agencies. He also sees a need to require that power generated in California stay in the state, or at least that a “California first” policy put state consumers at the head of the line.

Republicans also favor expanding supplies, saying it is scarcity of power that has made California vulnerable to price hikes. But GOP lawmakers are pushing tax incentives and reduced restrictions on building new power plants to speed construction.

“We believe the answer lies in the private sector,” Assembly Republican Leader Bill Campbell (R-Villa Park) said recently. Getting California into the power business is a bad idea and would discourage entrepreneurs thinking of building generating plants, he said.

Some Democrats say new power plants alone will not stop what they see as price-gouging by energy suppliers and middlemen. They vow to examine the workings of the dog-eat-dog power-trading industry, which has grown in both size and influence in California since the state’s big three utilities were forced under deregulation to sell off their power plants.

“The idea that unbridled capitalism is the answer to all our problems does not always seem to be true,” said Sen. Jack Scott (D-Altadena). “It did not work in the cable television industry. It doesn’t appear to be working in the electricity industry.”

Before the Legislature returns to work Wednesday, the PUC, meeting in San Francisco, will resume hearings today on proposals to raise electricity rates for the 24 million Californians served by Southern California Edison and PG&E;, which want to immediately raise rates. The PUC is scheduled to vote Thursday, and a rate increase seems inevitable.

The utilities say rates must be boosted at least 26% this month and go even higher if wholesale electricity prices don’t drop soon. Edison proposes that its rates climb as high as 76% within two years. Even such steep increases do not match the true cost of wholesale electricity, utility executives say. But the hikes should give Wall Street lenders enough confidence to loan several billion dollars more to the utilities, which utility executives say is needed to forestall rationing in coming weeks.

Consumer advocates grilled PG&E; officials last week. Today they get the chance to do the same with Edison. They believe that the utilities should seek financial help from their parent companies instead of consumers.

Davis has said he will propose ways to fix the electricity crisis as part of his State of the State address Monday.

Davis has argued that he has little authority to solve the energy mess because deregulation gave away most of California’s control over electricity prices and supply. He has unsuccessfully lobbied the Federal Energy Regulatory Commission--a long-standing proponent of deregulation--to impose price caps on wholesale electricity across the West and to force power plant owners to rebate profits to California consumers.

The governor has also focused on boosting investment in energy conservation and speeding construction of power plants. Since April 1999, six power plants with the combined capacity to supply 10% of the state’s peak demand have been approved for construction. Twenty more applications are under review.