California power watchers were hoping for results early thisweek from the marathon government-industry negotiations. Theprincipals of last Tuesday night’s marathon session were expectedto meet by video-conference over the weekend to review solutionsdeveloped by staff working groups, which met through the end of theweek. (see Daily GPI, Jan. 11)

On the West Coast the week ended with emergency legislationstarting its dash through the state capital, and the governorholding a 90-minute meeting with two neighboring western governorsto piece together a regional strategy on joint energyconversation/supply cooperation.

On Friday Gov. Gray Davis said if FERC fails to act, he is sureCongress will take up legislation to stabilize power pricesthroughout the country, “or at least give governors the option toopt into a stabilized pricing mechanism. Sen. Diane Feinstein,D-CA, announced she was working on a bill to be offered later thismonth, which would allow the energy secretary to impose price caps.

Davis indicated that he and federal officials would be workingover the weekend and he expects to have something to announce earlynext week, and in the long term he expects to “solve this problemin the next 90 days and in six months hopefully this whole episodewill be a distant memory.”

Also on Friday Standard & Poor’s assigned an investment gradetriple B-plus corporate credit rating to subsidiary PG&E EnergyTrading Holdings, and said subsidiaries Gas Transmission Northwest andPE&G Generating also would maintain their investment grade rating,based on each entity’s own creditworthiness and economicself-sufficiency. These units would be insulated from any downgradesof the parent PG&E Corp., or the utility subsidiary, Pacific Gas& Electric. This action came after PG&E suspended its fourthquarter dividend and announced it was cutting staff and services (seeDaily GPI, Jan. 12).

Following their meeting in Sacramento Friday, Gov. Davis and hiscounterparts in Oregon, John Kitzhaber, and Washington, GaryLocke, announced a Feb. 2 western governors’ meeting would be heldin Portland, OR, to push for a western region wholesale power pricecap, and a region-wide push by each state to conserve energy andfinally to share energy supplies on a seasonal basis. As fellowDemocrats, Washington’s Gov. Locke and Oregon’s Gov. Kitzhaberexpressed strong support for Gov. Davis’s efforts and pushed forsolutions from FERC

“It is extraordinarily important that this not be a partisanstruggle between West Coast Democratic governors and the inlandgovernors who are mostly Republican,” said Kitzhaber, noting thatnot all the solutions have to come from new generation.Conservation can play a major role, too. Both visiting governorssaid they strongly support the state of California becoming thepurchaser of long-term power and then reselling to the utilities.

They are banking on the fact that the state’s creditworthinesswill gain much better prices than the cash-strapped, near-bankrupttwo major utilities, Southern California Edison Co. and Pacific Gasand Electric Co.

The lower house (Assembly) of the state legislature cranked outabout a dozen proposed laws, including one to completelyrestructure the oversight boards of the state-chartered gridoperator (Cal-ISO) and wholesale spot power market (Cal-PX) fromlarge stakeholder panels of 26 to 30 industry representatives tosmall units of three people each — all appointed by the governor.Another proposed law would prevent the state’s three majorprivate-sector utilities, including the two near bankruptcy, tosell their remaining generation units, which are comprised mostlyof nuclear, hydroelectric and interests in out-of-state coal-firedplants.

Gov. Davis indicated he expects state lawmakers to pass the billthis Wednesday, establishing three-person boards, and the membersof the ISO panel will be the head of the state’s three principalagencies overseeing electricity — the California Public UtilitiesCommission, California Energy Commission and Electricity OversightBoard, of which two of the three are headed by Davis appointees.

The near-rolling blackouts of Thursday, caused by storm-drivenwave surges that curtailed power production at coastal plants, wereeliminated over the weekend through stepped up conservation,restoration of major units at PG&E’s Diablo Canyon NuclearGenerating Plant, and by what the grid operator called “the biggestsingle-day” lowering of demand he has ever experienced. This weekCal-ISO expects to have 5,000 to 6,000 MW that were out of servicelast week back online, further improving the chance of avoidingpower emergencies.

Salvaging the state’s system last week at the critical StageThree was California’s water resources department, which operatesthe massive north-to-south network of aqueducts. It purchased 1,200MW from out of state using the state’s creditworthiness to getaround the Cal-ISO financial problems.

As it has done on a lower-profile basis in the past, the waterresources department acted as a quasi-state power authority, andthe Cal-ISO COO Kellan Fluckiger said that other marketparticipants also are providing this sort of “intermediaryfinancing” in light of the credit concerns surrounding the ISO andutilities. The water department also contributed to the supplycrunch — as it does routinely — by shutting down its heavyelectricity consuming pumps that move massive quantities of wateraround the state.

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