In the nothing-is-really-settled department, the State ofCalifornia was preparing to intervene today in a federal districtcourt in Los Angeles that has been asked to raise utility rates tocover the unpaid costs of wholesale power.

At the same time, negotiations on a settlement with theutilities involved in the state’s power crisis will continue andstate legislative hearings on the utilities’ financial conditionwill be held early this week in Sacramento with the hope of a”conceptual” solution by the end of next week, according to thegovernor’s chief press spokesperson.

State policymakers on Friday were seemingly unconcerned aboutthe possibility of the federal judge ordering state regulators toraise utility rates. “Everyone knows whatever the decision is, itwill be appealed,” said spokesman Steve Mavigilio, who noted noanticipated settlement would be forthcoming over the weekend.

Despite continuing power alerts and the lifting at mid-week ofthe federal government’s emergency order requiring power to be soldinto the state, the power supply appeared to be adequate last week,thanks in part to a court injunction requested by the Cal-ISOrequiring Reliant Energy, AES Pacific, Williams and Dynegy tocontinue supplying the state. The Cal-ISO requested the injunctionwhen the federal mandate expired and the federal judge in this caseset the injunction to continue until Feb. 16.

Negotiations between Gov. Gray Davis’ team headed by a formerutility executive and the two utilities last week were centered onwhat the two energy companies would give to the state in return forstate-backed financing to cover some part of their mounting debts,estimated around $12 billion and rising.

“So far most of the so-called negotiations are mostly ‘talk’about the talks,” said a PG&E utility spokesperson in SanFrancisco, who was not optimistic Friday that any resolutions wereclose at hand.

And in another action, Duke Energy filed a lawsuit againstDavis’ action earlier this month commandeering the defaultedshort-term forward spot contracts relinquished in the defunctCalifornia Power Exchange by the two utilities.

Davis and his Democratic-controlled state legislature addressedthe state’s precarious electricity supply situation with variousproposals to greatly increase both conservation and in-stategenerating capacity by this summer, so the focus at week’s endturned to the two financially neutered utilities, whose leaderswere giving grudging indications that they might sell some of theirinfrastructure assets, such as their 26,000 miles of transmissionlines and interconnections if they received what they consideredfair market value.

Michael Peevey, the former Southern California Edison presidentwho is the governor’s chief negotiator, indicated late Thursdaythat he thought the utilities were warming up to the idea ofselling off assets and perhaps giving some stock options throughstate-backed warrants, too.

“We anticipate that we will be negotiating over this weekend,” aspokesperson for Southern California Edison said Friday. Meanwhile,the CEO’s of the parent companies and two utilities appeared at astate legislative oversight hearing Friday in Sacramento, whichattempted to grill regulators, utilities and other stakeholders onthe causes and effects of the state’s lingering electricity woes.

Last week was marked by Davis and the state Assembly leaderThursday announcing multiple new laws to push acceleratedgeneration and conservation efforts that are envisioned to unfoldat a frenetic pace in the weeks and months ahead.

As part of the actions, including a half dozen executive ordersand proclamations, the governor sent letters to President Bush andFERC Chairman Curt Hebert, seeking various federal actions thatwill help facilitate the state’s all-out generation andconservation efforts aimed at heading off rolling blackouts thissummer.

Permitting Requirements Relaxed

Key to the varied proposals is a massive relaxation ofpermitting requirements by various state and federal agencies.

In a wide assortment of moves, including putting a SoCal Edisonpower plant operations executive in charge as the state’s “energyconstruction czar,” Davis committed the state to: (a) streamliningthe siting of new temporary peaking generation plants through thestate water resources department; (b) accelerating baseload plantconstruction through bonuses and cutting red tape; (c) maximizingthe output of existing plants; (d) providing economic incentivesthrough rebates and tax breaks to renewable energy and distributedgeneration plants.

Citing his Jan. 17 declaration of an energy emergency in thestate, Davis asked President Bush to have the federal permittingprocess streamlined for the siting and operation of power plants inthe state. Davis also wrote FERC’s Hebert to ask for a furtherextension of an existing waiver regarding FERC-mandated operatingand efficiency standards for qualifying facility (QF) cogenerationplants. The governor asked for the waiver now in effect throughApril 30 to be extended through Oct. 15.

Only a few hours earlier, Democratic state legislative leader ofthe Assembly Robert Hertzberg unveiled a package of nine proposedpieces of state legislation — four designed to increase supply byup to 7,600 MW over the next four years, and the rest aimed atincreased conservation programs that would eventually save theequivalent of 1,200 MW, including 500 MW by this summer.

The proposed new laws include:

on-site generation incentives through a $50 million program;

renewable generation incentives totaling $150 million;

faster local generation plant siting for plants up to 100 MW,including removing the state energy commission from the process forthese plants, many of which would be peaking facilities;

requiring new baseload power plants in the state to signcontracts with the state for their output.; and

conservation measures which would provide more incentives forresidences, schools and government facilities to replaceinefficient appliances and equipment, and spend $100 million toestablish a statewide brigade of community nonprofit agencies todistribute low-energy light bulbs to residences.

Generators Form Creditors Committee

Late Friday three of the largest power producers currently beingstiffed by the Cal-ISO and the utilities, Reliant Energy, Dynegyand Mirant, said they are forming a creditors committee to exploreoptions for receiving payment. The group’s move is in response towhat they characterized as slow progress toward the implementationof a comprehensive long-term solution to California’s electricitycrisis.

“Our goal for many months has been to keep electricity flowingto Californians, and we remain committed to that objective.” But,”we are troubled over the pace of progress toward a comprehensivesolution, As publicly held companies, we have a responsibility toour respective shareholders and must now examine our alternatives.”

Richard Nemec, Los Angeles

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