Other States Have Led Way in Creating Power Authorities

As California lawmakers move toward final votes on measures to ease the state’s energy crisis, leading proposals would plunge the state into the power-generating business as never before by setting up statewide public power authorities.

Such a move would have been unimaginable when deregulation began just a few years ago and would be a sharp change in policy for California’s government. But the idea would seem far more familiar in the six states that have power authorities: Alaska, Arizona, Oklahoma, Texas, South Carolina and New York.

Advocates of public power say it’s common sense for the government to ensure citizens an adequate supply, with some die-hards reviving the old Depression-era slogan that “hydro power is the people’s power.”

“Public power has . . . demonstrated that it has, can and continues to operate for the benefit of the consumers in the communities it serves,” said Alan H. Richardson, executive director of the American Public Power Assn., an advocate for state power programs.

Free-market proponents say that cure is worse than the disease. A public power authority would provide the state no additional power and might worsen shortages by scaring away out-of-state power providers, said Bill Brier, a vice president at the Edison Electric Institute in Washington, a trade association for privately owned utilities.

Partly because they often generate cheap hydroelectric power, public power agencies generally offer lower prices than private utilities. According to the federal Department of Energy, investor-owned utilities charged 18% more on average than public utilities for residential electric service in 1999, the most recent year for which figures are available. Commercial rates were 9% higher.

Public power advocates say New York’s experience would be most relevant to California’s, should the state move into the energy business.

The New York Power Authority provides nearly one-quarter of the power used in New York state. Its prices--as low as a penny a kilowatt hour for some large hydroelectric customers--could make a Californian swoon in these days of 30-cent-a-kilowatt-hour electricity.

The power authority’s most costly electricity sells wholesale for about a nickel a kilowatt hour--about what electricity cost across much of California early last year, before the run-up in prices. The agency’s customers include virtually every utility in New York state.

Also in New York, the new, state-charted Long Island Power Authority, fashioned from the ashes of the Long Island Lighting Co., began providing electricity in 1997. The privately owned LILCO was partly taken over, partly bailed out, after being ruined by the costs of the Shoreham nuclear power plant.

In part because the new power authority had access to low-cost government financing, establishing the agency allowed rates to be immediately cut 17%. The new agency became the electricity provider on Long Island, a prosperous, largely suburban region with a population of more than 2.5 million. The Long Island Lighting Co., meanwhile, was retained to provide maintenance and service workers to the public authority.

The larger New York Power Authority owns giant hydroelectric plants on the St. Lawrence and Niagara rivers, a host of smaller hydro plants and oil-and-gas-fired plants in New York City and on Long Island.

In addition to possible price advantages, public power also holds out the promise that the electricity supply can be used to further other government purposes. Free-market advocates object that such schemes inevitably replace market decisions with political ones, but even Republican officials have employed them. Under New York’s Republican governor, George Pataki, for example, the state power authority has created a “Power for Jobs” program, which gives a discount to businesses that promise to retain or create jobs.

Supporters of public power also argue that government agencies are more able to offer rebates, loans and other incentives for customers to reduce their energy usage by, for example, buying more efficient appliances. Private utilities, they argue, are less likely to invest in programs that reduce sales. Economists who have studied such conservation programs have given them mixed grades for effectiveness.

The two leading energy proposals in the California Legislature would each probably lead to a government takeover of large hydroelectric generating facilities owned by Pacific Gas & Electric and Southern California Edison.

That would give the state control of a reliable, inexpensive power source amounting to 10% of California’s energy production. The utilities, in return, would receive billions of dollars in payment, saving them from bankruptcy.

Edison has expressed reluctance to sell its valuable hydropower assets, and PG&E; has declined to comment on the proposals.

Of the two proposals advanced by California lawmakers, the more sweeping one was introduced by Senate leader John Burton (D-San Francisco) and calls for creation of a new state agency with broad powers to build or acquire power plants, take over power transmission lines owned by the private utilities, and fund conservation efforts.

Also central to the proposal is state takeover of thousands of miles of privately owned electricity-transmission lines, for the purpose of expanding and improving them. Creating more power would be of little use if existing bottlenecks in the distribution system remain, supporters of the bill argue.

Burton’s proposal was drafted with help from state Treasurer Phil Angelides and the general manager of the Los Angeles Department of Water and Power, S. David Freeman.

Freeman, who has run federal and municipal power companies for three decades, said that creation of a state power authority would not threaten deregulation. Instead, he said, it would be deregulation’s best bet.

“This deregulation thing worked when we had a surplus” immediately after it was implemented in 1998, he said. “With a California power authority to assure there’s plenty of electricity, the private companies will compete against one another and the prices will stay reasonable.”

The other proposal, advanced by Assembly Speaker Bob Hertzberg (D-Sherman Oaks), does not necessarily create a new power agency. It could, for example, simply expand the California Department of Water Resources, empowering it to take over Edison’s and PG&E;’s hydroelectric facilities.

But Paul Hefner, a spokesman for Hertzberg, said the speaker isn’t ruling out the possibility of a state power authority. Though the water department could handle the responsibilities entailed in the plan, “That could be one function for a power authority, if one were to be created,” Hefner said.