$400 Million Gone, State to Tap Its Coffers Again

Having exhausted $400 million in nine days buying power on behalf of California’s two biggest utilities, the state is now opening its wallet again, using hundreds of millions more in surplus tax funds.

In the short term, the money is coming from the budget of the Department of Water Resources. Thrown unexpectedly into the role of electricity buyer this month, the department has been consuming its own budget at the rate of roughly $45 million a day since Sunday night.

The administration of Gov. Gray Davis has said the money will be replenished through the state’s multibillion-dollar budget surplus.

But there’s no guarantee taxpayers will see that money again, either in tax cuts or in government programs. The electricity purchased by the state is being billed to Southern California Edison and Pacific Gas & Electric. The state stepped in when the utilities became so burdened by debt that they could not borrow any money.

In essence, the state is now just another of the utilities’ creditors, one in a long waiting list.

Department of Water Resources officials testifying before the Legislature on Tuesday said they are prepared to internally redirect $400 million from water-related projects to purchasing electricity. If market prices do not change drastically, that money should help supply the customers of Southern California Edison and Pacific Gas & Electric for at least another week.

The Department of Water Resources funds to be tapped in coming days include $235 million appropriated by the Legislature in 1998 to help stretch the state’s Colorado River supplies, as well as $135 million intended for CalFed, a massive, 6-year-old federal-state venture to improve the environmental health and water supply reliability of the Sacramento-San Joaquin Delta, California’s main source of water.

Loss of that Department of Water Resources money in the short term will not disrupt any projects, said officials with the agencies targeted for the funds.

Davis has authority to shift the department’s budget under a state of emergency he declared Jan. 17.

On Sunday, the water department spent the last of the $400 million in taxpayer money it was given by the governor and Legislature. Those funds were released one day after blackouts skipped across northern and central California, in part because electricity producers refused to sell to debt-wracked Edison and PG&E.;

Those utilities, which serve 24 million people, have been financially squeezed by extraordinarily high wholesale electricity prices and fixed retail rates. Except for a temporary rate hike that took effect this month, the utilities’ customers’ rates have been fixed since 1996.

Davis has said the $800 million in taxpayer money that has been spent or committed is aimed at helping to keep power flowing until the water department can sign long-term contracts to buy power at cheaper rates. Talks with private power plant owners began Monday.