Seizing Generators an Option, Treasurer Says

California Treasurer Phil Angelides said Friday that if generators raise their already exorbitant electricity prices this summer, the state will have no choice but to commandeer power plants to avoid a financial meltdown.

In his most aggressive remarks to date on the energy crisis, California’s chief banker said Gov. Gray Davis’ financial plan to steer the state out of disaster has a chance to work--but only if generators curtail their charges.

If they do not, California’s only alternative will be to temporarily take over the privately owned power plants this summer--or raise electric rates 100% or more, Angelides said.

“There is no way that any financial plan can get us through the summer if the generators’ prices continue to careen out of control,” Angelides said. “If the generators back us to the wall, if the federal government does not control prices, our only option might be to commandeer these plants.”

Generators ridiculed Angelides’ proposed solution to the state’s power woes, claiming it would only worsen what is already a deteriorating business climate in California. They said such an action would scare off private investment in new power plants to fill the dearth of electricity supplies.

“I don’t think flying a California Bear flag over a power plant is going to solve the problem,” said Jan Smutny-Jones, executive director of the Independent Energy Producers, an industry trade group.

Davis spokesman Steve Maviglio held out the possibility that the governor might move to seize power plants, a step Davis threatened in his State of the State speech in January.

“If we continue to get gouged at a rate of $2,000 per megawatt-hour, it becomes an increasingly attractive option,” Maviglio said, referring to the record $1,900 rate that the state paid to Reliant Energy for electricity to avert a blackout on Wednesday.

Richard Wheatley, spokesman for the Houston-based energy company, acknowledged that Reliant was paid $1,900 per megawatt-hour to switch on two so-called peaking plants, but also said that when Davis revealed the price, he divulged confidential information.

Wheatley said one reason for the high price is that Reliant is charging a premium because of doubts that California will pay for the power it is buying.

After California’s decision to deregulate electricity, private utilities were ordered to sell many of their power plants due to fears that they would exercise excessive power over electricity prices in the state. Independent generators such as Reliant paid roughly $3.2 billion for 23 of the plants, which can produce up to 18,000 megawatts of electricity.

Since January, California has authorized more than $7.2 billion from the budget for electricity purchases from many of those same plants as it has sought to stave off blackouts. California was forced to start buying electricity because the state’s private utilities had become saddled with debt buying power on the wholesale market and could not continue doing so.

Based on a review of federal documents on 18 of the 23 plants, Angelides has concluded that they could cover costs and still achieve a robust 30% return on investment by charging $110 to $150 per megawatt. In the first quarter of this year, California paid an average of $285 per megawatt-hour.