Cartel to Curb Power Costs Urged

Democratic legislators on Wednesday urged Gov. Gray Davis to form a “buyers cartel” with Oregon and Washington that would refuse to pay exorbitant prices for electricity.

Frustrated by the refusal of the Bush administration to limit the high wholesale electricity prices that are draining California’s budget, the legislators are essentially proposing that the Western states trump the federal government and set a regional price cap.

“This has to stop, and establishing a buyers cartel is the easiest way to do it,” said Assemblyman Paul Koretz (D-West Hollywood), who has written a resolution calling on Davis to form the cartel. “Clearly, the Bush administration has abdicated its responsibility.”

California, Oregon and Washington consume more than a fifth of the nation’s electricity. Davis said Wednesday that he has not ruled out the idea of a cartel and plans to discuss it with fellow Democratic Govs. Gary Locke of Washington and John Kitzhaber of Oregon.

“This is the first we’ve heard of it,” said Locke spokesman Pearse Edwards. Kitzhaber’s office did not return several requests for comment.

In California, however, the cartel proposal is certain to face opposition from Republicans, who have been reluctant to support actions that are critical of the Bush administration’s response to the energy crisis.

By refusing to pay what they considered excessive power prices, legislators acknowledged that California and the other West Coast states would probably face additional blackouts. But continuing to pay the prices will lead to higher electricity rates and threaten California’s budget and the Western states’ economy, they said.

Wholesale electricity prices have soared in California since the state deregulated electricity in 1996, particularly in the last year. Under deregulation, utilities are not permitted to pass all of their increased costs to consumers because of a rate freeze. That situation led the utilities to accumulate billions in debt by the end of last year, to the point that they no longer had the credit to continue purchasing power.

To avert blackouts, California entered the power-buying business in January, purchasing megawatts on the open market to serve private utility customers. The state has since authorized $7.2 billion for electricity purchases. That tab, which has taken a huge toll on the state budget, is expected to more than double before year’s end.

“We cannot withstand these wholesale rates,” said Assemblyman Fred Keeley (D-Boulder Creek). Keeley estimated that in less than two years, new power plants should give California an electricity surplus and restore order to the wholesale market, so the cartel would be temporary.

By forming the cartel, California, Oregon and Washington would analyze electricity generators’ costs to produce electricity and establish a “maximum power purchase rate.” The rate would be in place for two years and would guarantee the generators a reasonable profit, according to the resolution.