Gov. Davis asks for $1 billion to stabilize California electricity market

Blaming out-of-state energy companies and brokers for the state's electricity shortage, California Gov. Gray Davis asked for $1 billion to stabilize the supply and price of electricity and help provide new power generation. Independent generators said calls for state takeover of existing plants won't help secure supplies.

Blaming "out-of-state energy companies and brokers" for the state's electricity shortage, California Gov. Gray Davis Monday proposed solutions that include creating a state power authority, more conservation, and criminal penalties for firms withholding power from the market.

While Davis did not outline specifics of a rescue package for the state's ailing investor-owned utilities, he proposed to set aside $1 billion to "help stabilize the supply and price of electricity in the present and help provide new power generation to meet the demands of the future."

Credit rating agencies have warned that Southern California Edison Co. and Pacific Gas & Electric Co. face potential bankruptcy because they could soon run out of cash.

While calling deregulation "a colossal and dangerous failure," Davis said it would be "irresponsible" to allow the major utilities to go bankrupt. If necessary, Davis said in his annual State of the State message, he will use the power of eminent domain to prevent generators from "driving consumers into the dark and utilities into bankruptcy."

Independent generators said calls for condemnation and state takeover of existing plants won't help secure additional supplies for California. Others warned that uncertainty about market rules and some of the governor's more draconian proposals could discourage construction of generation in the state.

John Sousa, a Dynegy Inc. spokesman, said three investigations by state and federal regulators "have not turned up any evidence of market manipulation." He said the company is participating in a White House meeting today on the California energy crisis.

A spokeswoman for Williams said the governor didn't really say "anything new." She said Williams continues to work with federal regulators on long-term contracts with the state investor-owned utilities.

She said, "We definitely think the answer is to allow utilities to enter into long-term contracts." The Federal Energy Regulatory Commission has sponsored talks with various parties on terms of such contracts.

With two proposed plants in the permitting process, Southern Co. will continue toward construction. But, said spokesman Chuck Griffin, "We have to have some clear market rules before we actually build those plants."

Reliant Energy Inc. said the debate should focus on load reductions that will be needed in the future to avoid outages, a balanced approach between the need for power and environmental rules, and a centralized siting process to avoid local government delays.

In his address, Gov. Davis proposed a 10-point program to resolve the crisis:

� Restructure the governing boards of the California Independent System Operators (ISO), replacing the "current advocates for the energy companies with advocates for the public." The Federal Energy Regulatory Commission made a similar recommendation as part of its Dec. 15 order to overhaul the California wholesale market.

� Revamp the bidding process for electricity, which guarantees that every generator is paid according to the highest bid, rather than their own bid.

� Streamline the process for utilities to enter into long-term contracts for electricity, and then apply pressure to the out-of-state generators to supply that power.

� Give state regulatory agencies authority to order any functioning generating facility down for "unscheduled maintenance" to go back on line.

� Allow the Public Utilities Commission 50 additional inspectors to monitor�and stand guard if necessary�at any facility suspected of deliberately withholding power from the grid.

� Make it a criminal act to deliberately withhold power from the grid, if the action results in imminent threat to public health or safety.

� Expand the authority available to the governor under a state of emergency in the event of imminent power outages.

� Provide $4 million to the attorney general to investigate and prosecute possible racketeering, market manipulation, price fixing, and other potential violations by merchant generators.

� Create a joint power authority among the state and 30 municipal utilities to develop additional power projects, or a California public power authority that can buy and build new power plants.

� Require all 141 campuses of the University of California, the state university system, and the community colleges to move toward energy independence through cogeneration and other means.

Saying the time has come to take control of the state's energy destiny, Davis proposed several measures that will limit electricity exports from the state. He proposed repealing the law that allows the three major utilities to sell their remaining generating facilities.

Davis said, instead, the utilities must be required to hold onto the facilities and sell the power in-state rather than out of state, a possible violation of interstate commerce laws. He also wants require California municipal utilities to sell excess power to California consumers at "reasonable rates." Currently, municipal utilities are free to sell power out of state.

In return for low-interest financing for new peaking facilities and the "re-powering" of existing ones, Davis proposed requiring the facilities to sell power in California. He said the state will also site generating facilities on state land on the condition the energy be distributed in California.

More in Pipelines & Transportation