Power Trade-Off With Potential

The state Assembly has taken the lead in crafting painful solutions to California’s energy crisis, and it is coming up with some resourceful plans. But the crisis is not the state’s alone to solve. The federal government, which controls the wholesale electricity market, must help as well. Keeping California’s lights on and airports, manufacturing plants and water pumps operating is a critical issue for the national economy. The Bush administration’s extension Tuesday of the Clinton-era orders directing power and gas suppliers to sell to California’s utilities was a wise first move.

The state is already negotiating long-term contracts with generators for supplying roughly one-third of California’s needs. With its budget surpluses and high credit rating, the state will get better prices than the nearly bankrupt utilities. It is clearly unrealistic of Sacramento to expect to buy power at 5.5 cents per kilowatt-hour--the figure Davis has named--when it costs nearly 10 cents to produce. But the contract prices will be far below the 30 cents it has cost the utilities to buy power on the spot market, and, just as important, long-term contracts will bring a stable supply of power.

A more controversial part of the plan, drawn up by Assembly Speaker Bob Hertzberg (D-Sherman Oaks), is to compel Pacific Gas & Electric and Southern California Edison, the state’s largest privately owned utilities, to “donate to the state full or partial ownership” of their vast hydroelectric assets--dams and turbines on California rivers. The state would borrow billions of dollars against those assets to buy power now and use profits from the distribution of the electricity the hydro plants produce to pay off the debt.

Clearly, the state, in stepping into PG&E;’s and Edison’s shoes as a power purchaser, would assume the utilities’ financial risk, for which it is entitled to compensation. Also, as both a generator and purchaser of power it would be able to produce according to spot prices--generating more when prices are high and buying more when prices are low. But the state is unlikely to be a more efficient generator of electricity than the utilities themselves, especially considering the highly politicized nature of water management in California. The state takeover of the system should therefore be limited, ending when the utilities regain their financial footing. Total expropriation should be considered only as part of a broad plan for the management of California’s crucial--and ecologically priceless--water system.

Hertzberg’s plan was put together with the help of industry and financial experts, though over the objections of consumer advocates who see the deal as a bailout. But here’s the real bottom line: It would help restore a reliable supply of electricity in California, especially if federal regulators kick in with some short-term rate relief.