CA Congressmen Join Governor in Seeking Federal Energy Relief

California's governor plans to keep stirring the pot in the waning days of April, but he is realistic enough to know the pace of his energy initiatives won't run any faster than the political wheels that turn in Sacramento and Washington, D.C. While he waits for state and federal legislative help, Gov. Gray Davis will focus on new generation this week, naming a "generation czar" to replace a loaned utility executive and continuing to try to mend political fences, according to his press spokesman.

"We'll get there eventually, it's just going to take some time," Steve Maviglio, the governor's press secretary said on Friday, responding to the negative reception the state legislature has given the proposed deal with Southern California Edison. "Legislators are naturally skeptical. This deal was just thrust upon them. They want to take their time and think this through."

Because of staunch opposition from minority Republican legislators, Maviglio said the governor has given up on urgency legislation regarding the Edison deal (see NGI, April 16). Any new law that is passed to seal the transaction will be delayed three months. Similarly, the proposed state bond sale tied to part of the deal will be delayed until June. It had been slated for May.

Maviglio said the governor feels he has made some headway politically at both the state and federal levels through his meetings with both Democratic and Republican caucuses in Sacramento and a bipartisan session with 28 members of the California Congressional delegation. The bipartisan delegation of California's congressional members indicated last week they would support Davis in asking Congress to bring down wholesale electricity prices and "open up" interstate natural gas pipelines serving their state. They contend there is unused capacity on interstate gas pipelines and that price caps should be re-imposed on released capacity. However, they emerged from a two-and-half-hour meeting with the governor saying that both free-market advocates and environmentalists will have to "give something" to find a solution to California's continuing problems. The meeting arranged by Davis took place in a hotel near Los Angeles International Airport. The participants agreed to keep meeting on a regular basis as a means of "breaking down the wall between the federal government and the state."

"We all agreed there has to be a mechanism that reduces the wholesale price of electricity, and that the entire West would benefit from some sort of price control, particularly this summer," said Davis, following the meeting. "And there has to be a mechanism that reduces the cost of transporting natural gas from our neighboring states. We all agreed to work cooperatively across party lines to find ways to reduce those costs for California. We're all Californians, and we need to find ways to work together."

The session took place at the same time that a joint state legislative committee in Sacramento was grilling executives from El Paso Natural Gas, El Paso Merchant Energy and Dynegy Corp. throughout Thursday afternoon over past contracts they had related to natural gas supplies coming into the state at the Arizona border. One observer close to the oversight subcommittee called the session "a draw."

The two energy companies "countered rather effectively," according to the source, providing "plausible answers" to most of the issues. Nevertheless, the committee still has some "pretty powerful numbers" that speak for themselves. This source felt the committee might have let the companies get them "bogged down in too much detail on how FERC works."

The committee has essentially completed its hearings on the border price issue, and it may write a report, although some state lawmakers think the committee findings are not going to conclusively prove market abuse and manipulation.

Meanwhile, congressional lawmakers said California needs to make the case for "anti-price gouging" measures as opposed to price controls. Their references sounded like so-called "soft" targeted price caps that only apply to generators whose prices exceed their costs by more than a fixed percentage (150% for example). Some of the congressional representatives indicated they plan to take proposals to the Bush Administration based on their meeting with the governor.

On a more immediate basis, the participants agreed to find ways to use more on-site generators this summer by waiving air emission restrictions if necessary so smaller businesses "don't have to go dark" during Stage Three power alerts, which are called just prior to rolling blackouts being employed. The elected officials cited some 600 MW of idled on-site generation capacity that environmental restrictions keep from being turned on even in the face of rolling blackouts.

Davis called it a "very productive meeting," and although the participants don't agree on everything, they do agree that wholesale prices for electricity and natural gas transportation are too high. "Congress could step in and produce legislation that would make sure FERC did its job," he said.

Natural gas prices and transportation adequacy was of as much a concern as the larger, more widely publicized electricity problems in the state, according to a half-dozen congressional representatives who spoke after the governor.

"Going back to California so many of our colleagues are telling us it is all California's fault, and yet, California doesn't have the right to regulate these two critical items [natural gas and electricity wholesale prices]," said Rep. Brad Sherman, (D-Sherman Oaks).

Rep. Duncan Hunter (R-San Diego County) stressed the state's critical need for natural gas, and the growing concern about the prices at the California border being so high relative to other parts of the country. Hunter cited statistics that natural gas in a production state like New Mexico is roughly one-third of what is charged in California, and he attributed the higher prices to "constrictions" on the interstate pipelines serving the state.

"Dealing with that [gas pipeline] problem is one that the FERC is going to have to give a lot of attention to," said Hunter, adding that he and other California congressional members are going to be "working on it in the next week or so." He also said they will be pushing for more conservation and on-site generation on the various U.S. military installations throughout the state.

Davis chose to re-direct more focus on Washington, and the federal regulators while state regulators and legislators spent last week struggling mightily to build momentum for his now two-week-old memorandum of understanding (MOU) with Southern California Edison, including the state's purchase of the utility's 12,000 miles of transmission lines and rights of way.

In response to the ever-increasing cost of power for the state, the governor repeated his belief that the general fund will be fully reimbursed for its power purchases and it will have enough extra (for a pending state bond issue) to pay for all the state's spot supplies the rest of this year. He did indicate the bond sale is now slated for early summer, which is a slip from previous plans for a May sale, and the reimbursement to the state would probably come in July or August.

QF Contract Investigation

Also last Thursday, the California Public Utilities Commission ordered a statewide investigation of the contractual obligations of the almost 700 small (qualifying facility) QF generators and the utilities, Pacific Gas and Electric Co., San Diego Gas and Electric Co. and Southern California Edison Co. The CPUC's order recognized an "urgency" to its investigation in light of the ongoing nonpayment by utilities and efforts by many of the QFs to be freed to sell their supplies to third parties at higher market rates than are currently being allowed through the utilities.

"The CPUC has already taken steps to resolve disputes as part of the state's efforts to curtail damage to California's economy and to businesses and residences affected by electricity shortages and spiraling market prices," the regulators' said in a prepared statement. "QFs provide about 25% of the electricity used in California and historically they have been a reliable source of generation."

Aside from the CPUC's regular business meeting April 19 in San Francisco, CPUC President Loretta Lynch offered empathy toward Edison's general financial plight and renewed pleas for federal regulators to provide wholesale price relief. "I have committed that the CPUC will expeditiously review those provisions of [Edison's proposed agreement with the state] that require CPUC resolution, and I have taken steps to begin that process," Lynch said in a prepared statement. "In the meantime, I commit to reviewing on a priority basis any and all proposals that promote the financial health of California utilities and the interests of its consumers."

PG&E: Bankruptcy Didn't Raise Costs

Davis and some of the CPUC commissioners have been complaining that the cost of the state's daily purchases of wholesale power on the spot market have increased from about $50 million to more than $70 million daily since the April 6 bankruptcy filing of Pacific Gas and Electric Co, but the utility challenged that conclusion that the court filing caused the latest price increases (see related story this issue).

"While it is understandable, even laudable, that the governor would want to fully explain the downsides of utility bankruptcy, this claim is simply not accurate," said PG&E utility spokesperson John Nelson. He argued that the increase in state payments for power reflect that the state water resources department (DWR) now is covering all spot purchases, including the often costly real-time emergency purchases by the state's transmission grid operator, Cal-ISO.

Thus, PG&E's spokesperson said the more likely cause of the increased power bill lies with recent moves by federal regulators and Cal-ISO, noting that the state grid operator should only sell to "creditworthy" entities. These moves were done independent of the PG&E bankruptcy filing, Nelson said.

Later, the governor's press secretary, Maviglio, released a list of facts countering what he characterized as the utility's attempt to "convince (news media) that its bankruptcy filing would have no effects on California." Among eight points cited, Maviglio said the bankruptcy has caused "unstable market conditions," which he said are illustrated by average daily power costs jumping from $45.8 million the last week of March to $73.2 million the week immediately following the PG&E filing (April 9-13).

As the daily bill for power goes up draining the state treasury more quickly, pressure mounts for a resolution to the utility financial situation, but the legislature last week expressed a lot of skepticism toward the governor's proposed deal with Edison. A state senate leader, John Burton, told news media Wednesday that bankruptcy might be the best approach by Edison.

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