Energy Deal May Take a Month, Davis Tells Analysts

As a hopeful Gov. Gray Davis extended his East Coast barnstorming tour before skeptical Wall Street utility analysts Wednesday, members of California’s congressional delegation vowed to continue their campaign for caps on wholesale electricity prices after a tense standoff with a top federal regulator.

Davis completed his five-day trip by raising about $200,000 for his 2002 reelection campaign at private events in Manhattan, and then conferring with analysts in an effort to persuade them that he is solving California’s energy crisis.

Although Davis delivered some good news--that some electricity suppliers would accept less than the full payments owed to them by the state’s debt-ridden utilities--he acknowledged that it probably would take more than a month to complete his plan to enable the utilities to stave off bankruptcy.

“Did they leave without doubt? I don’t know that is ever the case,” Davis said of his select audience of 35 analysts. “But I do believe they left thinking I’m sincere, I’m making progress, and am confident that I will fix it.”

Reaction Varies

Analysts who attended the hourlong meeting came away saying Davis offered little that they didn’t already know. Some questioned why he excluded many analysts who closely track utility bond debt, given that Southern California Edison and Pacific Gas & Electric Co. have defaulted on several bond payments.

Michael S. Worms, senior vice president of Gerard, Klauer & Mattison, described Davis as “very cognizant of the situation,” adding that the governor appears to understand the fundamental problem that California lacks sufficient power plants to supply the populace.

“I got the impression he is on top of it. He understands the issues,” Worms said.

Others were far less charitable. Davis’ lack of specificity added to their skepticism.

“I’d like to see specifics,” said Steven M. Fetter of Fitch Inc., which rates companies’ credit-worthiness. “I didn’t expect specifics, and he lived up to my expectations.”

Davis told the analysts that some power generators have agreed to forgo full payments from the utilities. State regulators have barred Edison and PG&E; from passing on to consumers the skyrocketing wholesale power costs charged by independent power generators and marketers, leaving the utilities owing billions.

Davis spokesman Steve Maviglio confirmed Wednesday that two generators made “unsolicited offers” to the governor to write off some of their debt. He did not identify the independent generators or say how much they would trim from their debt.

Representatives of the energy companies that have sold more than $1 billion in electricity to the state since January reacted coolly to Davis’ suggestion that they not receive full payment for their goods.

“The best insurance against continued energy shortages is full payment for all deliveries that have been made in the past,” said Gary Ackerman of the Western Power Trading Forum, a group of energy marketers and generators.

Davis last week said he and Edison had agreed to the outlines of a deal by which the state would give the utility $2.76 billion in exchange for its share of the statewide electricity transmission system.

At the time, he said he hoped to have a more detailed version of the plan by the end of this week, as well as one to buy transmission lines from San Diego Gas & Electric.

Fund-Raising Events

However, on Wednesday, the governor said a final agreement between the state and Edison will not be reached for as long as a month, maybe longer. A deal with PG&E;, the state’s largest utility, “could take a little longer,” Davis said, adding that the company’s debt is far larger than Edison’s.

“This transaction is going to be scrutinized for decades to come,” he said. “I’m determined to do it fairly but do it in a way that withstands scrutiny.”

After conferring with Bush administration officials and attending a governors conference in Washington, D.C., over the weekend, Davis arrived in New York on Tuesday to be feted at a fund-raising dinner hosted by Richard Medley, an economic strategy consultant and head of Medley Global Advisors. On Wednesday, Davis attended a breakfast fund-raiser at the headquarters of the banking and financial services firm Citigroup, whose chairman, Sanford Weill, served as host.

The governor raised an estimated $200,000 in all for his 2002 reelection campaign, a source said, requesting anonymity. Neither Medley nor Weill could be reached for comment. Both men are significant political donors to national campaigns.

While Davis sought to make the case for his utility rescue plan, members of California’s congressional delegation focused on efforts to reduce the high wholesale power costs at the heart of the crisis. The bipartisan group of lawmakers pledged to press ahead with legislation that would impose temporary price caps, after they met behind closed doors with Curt Hebert Jr., chairman of the Federal Energy Regulatory Commission. Hebert is a free-market advocate and has vigorously opposed price controls.

“You heard me screaming?” asked Rep. Bob Filner (D-San Diego) after the meeting with Hebert.

“Almost everyone argued with Mr. Hebert that we need help from FERC,” said Rep. Henry A. Waxman (D-Los Angeles), citing Democratic and Republican support for temporary limits on wholesale prices. “Mr. Hebert didn’t care.”

“It didn’t make any difference whether you were a conservative Republican or a liberal Democrat,” Waxman said. “We all felt that we were not getting the help we need from the Federal Energy Regulatory Commission.”

But Waxman said he considered the meeting worthwhile “because it had to impress upon Mr. Hebert” the strong support for price controls shared by many California lawmakers.

Several Republicans who attended the session were less critical of the agency and its chairman but expressed support for providing a legislative fix in the absence of FERC intervention.

“The chairman is not going to be supportive of our bill, but he’s at least willing to talk with us and listen to us,” said Rep. Duncan Hunter (R-Alpine)

So far, only about half the delegation has endorsed the price cap legislation. Filner noted that he and his ideological opposite, Hunter, have found common ground on this issue after hearing from constituents squeezed by higher fuel costs.

During the meeting, Hebert declined--on his attorney’s advice--to take a stand on Davis’ proposal to have the state take control of the electrical transmission system, according to some of those attending. The takeover would require FERC approval, and Hebert reportedly expressed concern about taking a position on a matter that his agency has not yet considered.

Hebert bristled when a reporter, chasing him down a hallway, asked if FERC were doing enough to help California.

“We’ve worked so hard on California that we have a backlog of 2,000 cases right now,” he snapped, adding that Davis never asked to meet with him.

Asked if he was aware of talk that another chairman might be named, he said, “You’d have to ask the president that.”

In other developments Wednesday:

* California’s electricity grid was jolted into a Stage 2 power emergency after several large electricity plants tripped offline in the morning. The outages were not related to the Seattle earthquake, which had no significant effect on regionwide electricity operations, a grid spokesman said.

* Millions of Californians would receive rebates of 10 cents for every kilowatt-hour of electricity they conserve this summer, under legislation introduced by state Sen. Don Perata (D-Alameda). The bill, SB 63X, would set aside $1 billion to reward consumers who reduce their power use compared with that of the same month a year earlier.

* Calpine Corp. said it signed two more long-term electricity contracts with the state Department of Water Resources valued at $8.3 billion.

* Southern California Gas Co. agreed to provide as much as 30 million cubic feet of gas per day to PG&E; in the next month to help ease the utility’s difficulties in obtaining supplies. Under the agreement, PG&E; will guarantee payment to the Los Angeles gas utility by pledging gas accounts receivable as security for unpaid balances that cannot exceed $16.5 million. Gas Co. Chairman Edwin A. Guiles said the agreement should have no adverse effects on natural gas costs or service for any of the company’s 5 million customers.

Times staff writers Nancy Rivera Brooks and Nicholas Riccardi in Los Angeles, Miguel Bustillo and Nancy Vogel in Sacramento and Tim Reiterman in San Francisco contributed to this story.

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Power Points

Background

The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state’s biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.

Daily Developments

Gov. Gray Davis tells Wall Street utility analysts it may take a month to complete the deal that would keep utilities out of bankruptcy.

The electricity grid went into a Stage 2 power emergency after several large electricity plants went offline in the morning.

Legislation introduced by state Sen. Don Perata (D-Alameda) would give consumers rebates of 10 cents for every kilowatt-hour of electricity they conserve this summer.

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Verbatim

“The best insurance against continued energy shortages is full payment for all deliveries that have been made in the past.”

-- Gary Ackerman,

Western Power Trading Forum

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Complete package and updates at www.latimes.com/power