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Power alerts start up again

SACRAMENTO – Gov. Gray Davis’ multibillion-dollar rescue plan for two utilities drew a tepid response from Wall Street on Wednesday as California’s weeklong respite from power alerts came to an end.

The unexpected shutdown of four Western power plants for repairs, combined with scheduled maintenance at several in-state plants, forced California grid officials to declare a Stage 2 alert after seven days with no power emergencies.

Electricity reserves were expected to fall to 5 percent, said Lorie O’Donley, a spokeswoman for the California Independent System Operator.



California has been plagued with energy problems for months, including the near-bankruptcies of its two biggest utilities and tight supplies that have had the ISO scrambling frequently for enough power to avoid blackouts.

Southern California Edison and Pacific Gas and Electric Co. say they have lost nearly $13 billion since June due to sharply rising wholesale electricity costs the state’s deregulation law barred them from recovering from their customers.



Davis wants to buy the transmission lines of Edison, PG&E and the state’s third investor-owned utility, San Diego Gas & Electric, to help Edison and PG&E pay their debts.

A ”conceptual agreement” could be struck with the San Diego utility, a subsidiary of Sempra Energy, by the end of the week, while an agreement with PG&E ”will take a little longer,” he told reporters following a private meeting in New York with financial analysts.

Davis reached an initial agreement with Edison last week.

The governor has also ordered state agencies to speed up the application process for new power plants, signed legislation letting the state spend an estimated $10 billion over 10 years to buy power for customers of Edison and PG&E and called for conservation statewide.

Wall Street analysts who met privately with Davis in New York on Wednesday called his moves a good step toward solving the energy crisis, but said more must be done.

”He talked about a lot of short-term measures to alleviate problems for this summer, but he hasn’t communicated a long-term fix,” said Lawrence J. Makovich, senior director of Cambridge Energy Research Associates.

Davis said strides California has taken to address its power needs include approving construction of nine plants and launching an $800 million conservation program.

The transmission plan would ”make sure the taxpayers get some value” in the form of long-term electricity price stability and ensure the utilities avoid bankruptcy, he said.

In all, the proposal would put 26,000 miles of power lines under state control for a purchase price that could range from $4.5 billion to $7 billion.

Makovich said Davis has to overhaul the marketplace to encourage power providers to make necessary investments in California. He doubted conservation efforts could free enough power.

California’s greatest impediment to fixing its power problems are tough environmental standards and other regulatory hurdles that make it ”very difficult and expensive to build power plants in California,” he said.

Meanwhile, in Sacramento, Public Utilities Commission Chairwoman Loretta Lynch told reporters that she and others on the PUC should have recognized sooner that utility deregulation wasn’t working.

”There were so many people wedded to the concept that eventually it would all work out,” Lynch said at a press luncheon.

Republican lawmakers place much of the blame for California’s energy woes on Lynch and the PUC, saying the commission could have let utilities enter into long-term contracts before the companies’ credit ratings were downgraded to junk-bond status.

The utilities were able to enter extended contracts for wholesaler power after an August PUC decision and ”it was their business decision not to do so fully,” Lynch said.

Republican Assemblyman Keith Richman disagreed, saying the PUC failed to provide the utilities with written guidelines for the contracts.

Without those guidelines, ”the PUC three or four years down the line could void that contract and tell the utility that they need to provide a price rebate for the consumers,” said Richman, R-Northridge.

”The PUC felt prices were going to come down in the future” and didn’t want to encourage utilities to lock in prices at a higher rate, he said.

Edison’s and PG&E’s credit then plummeted to the point that the state agreed to buy power for their customers. The Davis administration has committed $2.7 billion – roughly $45 million a day – since early January to costly short-term power buys while seeking cheaper long-term contracts with wholesalers.

Calpine Corp., a San Jose-based generator, announced Wednesday it had agreed to two long-term contracts for $8.3 billion.

One would provide up to 1,000 megawatts for 10 years, starting July 1. The other would sell the state up to 495 megawatts for two decades.

One megawatt provides enough power for roughly 1,000 households.

EDITOR’S NOTE: Associated Press writer Brad Foss in New York contributed to this report.

On the Net:

California Independent System Operator: http://www.caiso.com

AP-WS-02-28-01 2116EST


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