Energy Bill Stalls Amid Debt Fears

With the clock ticking and California taxpayers losing millions of dollars with each passing hour, state legislators stalled Tuesday in their effort to pass the first measure aimed at relieving the state’s electricity crisis.

The legislation includes authorization for $10 billion in revenue bonds to buy power.

“Gulp,” said Assemblywoman Carole Migden (D-San Francisco), summing up reaction to the chasm of debt opening up before lawmakers’ eyes.

The state Senate Appropriations Committee bogged down in debate over who should get hit with rate increases, and failed to pass an “urgency” bill to put the state government into the business of buying and selling electricity through long-term contracts with generators.

That cast doubt over the state’s ability to meet a Thursday target date for the state Department of Water Resources to begin writing multiyear contracts with power generators that are expected to dramatically lower the cost of electricity. The department has been spending about $40 million a day to buy electricity on the sky-high spot market, bleeding state reserves.

The state has been forced to step into the electricity market because California’s two biggest utilities, Pacific Gas & Electric and Southern California Edison, lack both the cash and the credit to buy power themselves. The two companies lost billions of dollars in the last half of last year when the price of deregulated, wholesale electricity shot through the roof. With retail rates still regulated by the state, the companies were unable to pass along the higher costs and got caught in a squeeze.

Those dynamics, coupled with increased demand and an unexpected number of power plant breakdowns, led to the electricity shortage that has kept the state on the brink of power outages all winter. Tuesday marked the 15th consecutive day the state has been in a Stage 3 power emergency, called when electricity reserves fall below 1.5% of total capacity.

In other developments Tuesday:

* The state Public Utilities Commission released a highly critical independent audit of PG&E.; The audit, which was far more skeptical of the company’s performance than a similar audit was of Southern California Edison, suggested that PG&E; may have overstated the severity of its financial crisis and may have mismanaged its response to soaring energy costs. The document did not say, however, that PG&E;’s fiscal condition is by any means healthy.

* Gov. Gray Davis appointed a three-member team to represent the state in negotiations with private utilities over establishing a public ownership interest in the companies. The members are Michael R. Peevey, a former president of Southern California Edison; San Francisco attorney Michael Kahn; and Michael Kramer, a New York attorney who specializes in restructurings and bankruptcies.

* Mexican Foreign Minister Jorge Castaneda said in Washington that Mexican power suppliers have begun selling 150 megawatts of excess electricity to California, enough to supply 150,000 homes.

On Tuesday, legislators focused on the emergency bill that would permit the state to buy power for years to come. Those who balked at passage feared it would lead to rate increases for residential customers.

The bill itself would not raise rates. However, it includes provisions that would allow the PUC to consider rate increases as long as they were needed to cover the cost of wholesale power purchases.

The bill’s author, Assemblyman Fred Keeley (D-Boulder Creek), said he believes that Southern California Edison customers will not see rate increases for as long as three years--if state negotiators can obtain contracts for long-term power at reasonable rates. A team led by Los Angeles Department of Water and Power chief S. David Freeman has begun negotiations with private power generators over long-term contracts.

Keeley was less optimistic about rates for PG&E; customers. They currently pay slightly lower rates than people in Edison’s territory, and are more likely to face increases, he said.

State Finance Director Tim Gage was more upbeat, however, saying rate increases are “far from certain” for PG&E; customers--a significant retreat from comments he made Friday, when he said a “modest” rate hike was possible.

“I sit here wondering . . . if I misheard you,” said state Sen. Jim Battin (R-La Quinta), who had grilled Gage on Friday about his rate-hike remarks.

Gage did not respond.

Under long-term contracts, the state could use its credit-worthiness to buy the power no longer available to PG&E; and Edison. The state would resellit at cost to California consumers, either directly or indirectly with the utilities serving as billing agencies.

For the past several weeks, the state water department has been an energy pinch-hitter for the utilities on the daily market, but the agency insists that it needs legislative authority to enter into long-term agreements.

The bill triggered concerns in the Appropriations Committee that the pocketbooks of both ratepayers and taxpayers were not sufficiently protected.

The bill would require residential customers to pay unspecified higher rates if their electricity consumption rose above 130% of a “baseline” rate, an existing minimal standard that varies by region and climatic conditions.

Wall Street analysts believe that rate hikes are inevitable; investors will need assurances that California can repay bonds that the state Department of Finance wants to sell to fund power purchases.

The PG&E; audit, commissioned by the PUC from Barrington-Wellesley Group of New London, N.H., sharply criticizes the utility for failing to respond to the energy crisis until December, even though “there were strong indications 18 months ago that California might face the energy crisis that it now confronts.” The utility has not implemented all the cutbacks it could to conserve cash, the audit says.

The document confirms that PG&E; has gone $6.7 billion in the hole in buying power for its customers since last summer. But the utility is also holding $1.5 billion in revenue from its own generating plants, making its net deficit $5.2 billion at the end of last year.

The audit says PG&E; pursued a flawed bidding strategy in the auction market for California electricity in December that resulted in its being outbid for the rights to its own generating capacity. By self-imposing a cap on the price it would bid, the utility won only a fraction of the power it would need, the audit says. PG&E; was forced to make up the balance by buying power at much higher prices through the California Independent System Operator--prices it now intends to pass on to consumers.

The auditors questioned the financial relationship between PG&E;, the utility, and PG&E; Corp., its corporate parent--suggesting that the utility has sent hundreds of millions of dollars more in cash to the parent than it owed.

PG&E; issued a statement late Tuesday, without addressing most of the sharper criticisms, saying that its actions were “consistent with PUC directives.”

The flow of funds from the utilities to their parent companies has quickly become a political issue. Consumer advocates and some state legislators contend that some of the money should instead have been held in reserve to pay for power.

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Ingram reported from Sacramento and Hiltzik and Landsberg from Los Angeles. Times staff writers Dan Morain and Julie Tamaki in Sacramento and Roberto J. Manzano in Los Angeles contributed to this story.