Governor is briefing Greenspan, Clinton on California energy crisis

Wednesday, Dec. 27, 2000 | 11:03 a.m.

SUN WIRE REPORTS

WASHINGTON -- California Gov. Gray Davis planned to meet with President Clinton today to discuss his state's energy crisis and the effect surging power prices may have nationwide, Davis spokesman Steve Maviglio said.

Davis met with Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence Summers in Washington Tuesday to discuss how to keep utilities solvent and win support for electric rate increases being considered by state regulators.

"Davis asked for the meeting to update the president on the situation," Maviglio said. Davis is not seeking federal assistance for the state's two largest utilities, he said.

PG&E Corp.'s Pacific Gas & Electric and Edison International's Southern California Edison have accumulated more than $8 billion in debt buying power at higher prices than they can legally charge customers.

Davis said he would use emergency powers if necessary to resolve the crisis, which followed the state's deregulation of its power market. He plans to make proposals in his Jan. 8 state-of-the-state address, including a focus on conservation and the acceleration of plans for more power plants. He said he didn't ask Greenspan or Summers for federal assistance.

Separately Tuesday, PG&E suggested adding a surcharge to electric bills for the next 10 years to pay for just one year's turmoil in wholesale electricity markets.

It also backed away from years of efforts to sell its hydroelectric plants, offering instead to keep them temporarily, boost their worth on paper to $2.8 billion and collect a 12.5 percent return on that figure as part of new, higher electric rates.

Consumer groups were expected to strongly contest such efforts this morning in San Francisco, when two days of hearings were to begin into whether regulators should lift a rate freeze and authorize new charges for millions of Californians.

The state Public Utilities Commission will hear from PG&E, Southern California Edison and power users big and small who are disputing how much consumers should pay for the disarray spawned by electric deregulation.

PG&E's power costs will average 45 cents a kilowatt hour in December, at a time when it can only bill customers 5.4 cents a kilowatt hour for the electricity portion of their bills, utility lawyers said in documents filed with the PUC late Tuesday.

They predicted PG&E will run out of cash in the next three to seven weeks because of the "frightening" explosion in wholesale power costs.

Unless the PUC raises rates soon and promises that more rate increases will come later, PG&E said, its credit rating will sink so low that it won't be able to borrow enough money to keep paying for electricity.

The utility also presented regulators with estimates about future power costs that, it said, would require rate increases of 23 percent to 66 percent.

Meanwhile, Davis said he sought advice on dealing with the energy crisis during a two-hour private meeting with Greenspan and Summers.

"Suffice it to say they agreed that this is one of the more intractable problems they've seen in the short term, but we will get through this with more conservation and bringing more supply on line," Davis said, appearing on PBS' "Nightly Business Report."

Davis again blamed power generators for exacerbating the crisis by "gaming and marketeering the system," and said Californians "are the victims of a failed experiment."

"This is a serious problem, but we will manage it if everyone does their part," Davis said. "I need some help from the generators -- they can't be charging 800 or 900 percent the cost of electricity. We need more conservation then we've had before and we need to accelerate additional supply."

He said power generators should realize that if deregulation fails in California, "deregulation is over in America. They have a vested interest in seeing that deregulation down the road can work without sacrificing the California economy that is now contributing disproportionately to the nation's growth."

The Democratic governor would not comment on proposed rate increases before the state Public Utilities Commission.

Last week, the PUC ordered the emergency rate hearings that were to open today, and said it hopes to make a decision on rates on Jan. 4.

While the fiercest battle will be fought over how high rates could go, secondary debates began erupting almost immediately over an issue that could be even more important for some consumers -- whose rates will go up the most.

Should people who use only a few hundred kilowatt hours a month be spared?

Should power-guzzling homes be forced onto programs that automatically shut off their air conditioners or bill them tens of times higher for electricity used at 4 p.m. than they pay for it at 4 a.m?

Should businesses shoulder most of the extra costs while residents get special protection from price swings?

Should low-income discounts be expanded?

Those are among the issues being raised by ratepayer groups in documents filed with regulators since last Thursday's call for emergency hearings.

Millions of dollars can ride on each arcane rate decision that regulators usually take months to mull, after hearing from scores of accountants and lawyers in quasi-legal rate proceedings before an administrative law judge.

"Jan. 4 is a very ambitious date for any kind of final decision," said Michael Shames, head of the Utility Consumers Action Network.

"The utilities desperately want ... to push through a decision as quickly as possible because once this becomes more of a legislative issue, the price for the utilities will become larger and larger," he said.

Shames has been urging Davis to support only a temporary loan or other interim measure to reassure utility lenders without building in indefinite higher rates.

The PUC's semi-autonomous Office of Ratepayer Advocates will recommend that small consumers should have their rates raised temporarily by 8 percent, with the money tracked through a special account.

Once more detailed bookkeeping is done, it could turn out that no rate increase is needed after all, and the money could be refunded to consumers through lower rates for the next six months, said ORA senior manager David Morse.

Big companies would pay higher rates under that proposal and several others, something that worries the California Industrial Users coalition.

"All you're doing is making them pass costs through in what they charge for whatever products they make. It eventually filters back to the consumers anyway," said the groups' attorney, Dan Carroll.

Or even worse, Carroll said, consumers balk at the higher prices and the affected companies go out of business instead, or leave the state.

Many consumer groups contend that PG&E and Edison, California's two biggest utilities, should not be allowed to raise rates at all, after collecting an estimated $18 billion in extra payments from customers to fund a transition to electric competition.