$10-Billion Plan for Power Authority Would Reverse State Deregulation

Five years after California decided to deregulate its electricity industry, a growing number of officials are calling for an about-face: the creation of a public power authority as a solution to the state’s energy woes.

The idea is controversial. But for political figures looking for a way out of the current energy morass, the concept has considerable attraction.

On Friday, state Treasurer Phil Angelides unveiled the most detailed plan so far for a power authority. Angelides’ proposal would create a $10-billion state authority that could construct power plants, take ownership of the transmission system that currently belongs to private utility companies, slice consumption of electricity through conservation and, if necessary, condemn power plants to put control of their output back in the hands of the state.

“We need to start today, not tomorrow,” said Angelides, “on taking control of our own destiny.”

In the short term, a power authority could float bonds to help pay for power or perhaps buy transmission lines or other assets from the state’s private utility companies. Either approach would provide cash to the companies, which have said that high power prices are putting them on the edge of bankruptcy. But it would do so without taking the politically unpopular step of directly loaning them taxpayer funds.

The move would be “a buyout, not a bailout,” said S. David Freeman, general manager of the Los Angeles Department of Water and Power, who has been one of the most influential supporters of the idea.

Over the longer term, supporters say, a power authority could provide the state a more stable source of power as well as a yardstick by which officials could measure whether private power generators are charging reasonable prices for their electricity.

As Angelides made his proposal, there were these developments:

* Southern California Edison said that it will lay off 600 employees and 850 contractors over the next several months. The utility, which announced 400 contractor layoffs last month, says it will save $465 million in all.

* U.S. Secretary of Energy Bill Richardson extended for five more days an order that requires electricity producers across the West to sell their surplus to California whenever grid operators expect power reserves to fall dangerously low.

Richardson added to his order a provision forbidding the agency that manages California’s electricity grid from paying more than $64 per megawatt-hour for power.

In an interview, John Bryson, chief executive officer of Edison International, parent company to Southern California Edison, said he hoped that a price cap of that sort would help hold down the utility’s future electricity costs.

But a spokesman for power generators said the price cap was unrealistically low and would not even cover the costs to produce power.

“Nobody’s going to sell at that price,” said Gary Ackerman, executive director of the Western Power Trading Forum, which represents power plant owners.

Richardson’s order also requires California to find ways to reduce peak electricity demand by 5% by Jan. 15. Noting that officials in other states have voiced resentment of apparent special treatment for California, Richardson said it is “essential that we give the people of those states the confidence that California is doing everything it can to ease the tight supply conditions.”

A spokesman for Gov. Gray Davis said, referring to the 5% requirement, that “we would have preferred it not be in there.” But, said spokesman Steve Maviglio, “we believe it’s achievable, given historic energy consumption patterns in California.”

* A federal court of appeals in Washington rejected a lawsuit that Edison has brought against the Federal Energy Regulatory Commission. The suit seeks to force the commission to impose price caps on the wholesale electricity market.

* John Stevens, Davis’ temporary appointee to the California Public Utilities Commission, resigned from the post one day after casting a vote in support of a 90-day rate increase of 9% for residential customers. Davis placed Stevens on the utilities commission Wednesday, saying the appointment would be for a short time. Stevens returned to Davis’ Capitol office.

As the debate over the state’s power future heated up, Angelides’ proposal drew praise from consumer representatives and a key Democratic legislator, but a mixed response from business leaders.

“I think it’s got more merit than most of the stuff we’ve heard,” said state Senate leader John Burton (D-San Francisco). “I’m going to put in a bill basically to implement that.”

Angelides said he hopes the Legislature embraces his idea as a bill to be passed in the special session on electricity issues now under way. In such a session, bills signed into law can take effect within 90 days.

A private poll taken by a legislator and circulating through the Capitol showed strong voter opposition to any increases in electricity rates. But the poll also showed that voters appear willing to permit the state a greater role in supplying power, a source familiar with the survey said.

The movement toward public ownership of the electrical network that underpins California’s economy is catching hold, said Stu Wilson, assistant director of the California Municipal Utilities Assn.

“In this current market environment,” he said, “the ability to have more control over your own destiny has a lot of appeal to folks.”

But a spokesman for one of the private companies that has moved into California to run power plants under deregulation sharply criticized the idea.

“Is this America or what?” said Tom Williams, spokesman for Duke Energy North America.

Duke spent $611 million buying four plants, he said, and is poised to invest $1.6 billion more in modernizing and rebuilding major plants.

“We are doing it on our nickel, not the taxpayers, and we’re doing it at our own risk,” he said.

Bryson expressed qualified support for the idea of a broader state role, but suggested the state should focus on gaining control over power generating stations owned by companies like Duke, rather than over the transmission grid that Edison and other utilities own.

“The real problem we’ve got is you still have to acquire the power,” said Bryson. “It’s the generating plants that are causing the current financial problem.”

Angelides, who was a Sacramento developer and prominent Democratic fund-raiser before becoming treasurer, said California must protect itself from the vagaries of the electricity market, where prices last month averaged 10 times higher than those of December 1999.

There are no state power authorities operating exactly as Angelides proposes, according to public power experts.

As a model, Freeman, who consulted closely with Angelides over the plan, points to the power authority of the state of New York, which he once headed. That agency was created in 1931 by Franklin Delano Roosevelt, then the governor of New York, to “give back to the people” the river-generated power that had been exploited by private companies.

The New York agency supplies 25% of the state’s electricity by selling it to community-owned systems at no profit.

Another example held out by public power supporters is Nebraska--the only state in the nation where every utility is publicly owned. Electricity rates are 20% below the national average, said Dorothy Endacott, spokeswoman for the Nebraska Public Power District.

A California company that makes plastic pipes, Wesflex, recently moved from the Redding area to Beatrice, Neb., she said, to take advantage of those rates.

“We’ve looked at deregulation pretty closely,” she said, “and our Legislature has said that as long as our rates are lower and reliability is high, we will not change conditions.”

Under Angelides’ plan, the proposed power authority would move to eliminate California’s current shortfall in electricity supply--about 10,000 megawatts, or enough electricity to supply 10 million homes--by floating bonds to finance power plant construction, to give consumers loans for efficient appliances, such as refrigerators, in order to reduce overall demand, and to buy the transmission grid owned by Edison and Pacific Gas & Electric.

Freeman says he estimates that the grid, which reaches 75% of the state, could be worth $4 billion. Buying it, he said, could give the utilities cash. State ownership would free California from federal regulation of transmission fees on that grid.

The proposed California Consumer Power and Conservation Financing Authority would be run by a seven-member board appointed by the governor and Legislature. It could finance, own and operate power plants either on its own or through partnership with Edison and PG&E; or other third parties.

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Times staff writers Jeffrey Rabin in Los Angeles and Dan Morain in Sacramento contributed to this story.