CA Power Crisis Continues In Courts, Legislature

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

At the same time, negotiations on a settlement with the utilities involved in the state's power crisis will continue and state legislative hearings on the utilities' financial condition will be held early this week in Sacramento with the hope of a "conceptual" solution by the end of next week, according to the governor's chief press spokesperson.

State policymakers on Friday were seemingly unconcerned about the possibility of the federal judge ordering state regulators to raise utility rates. "Everyone knows whatever the decision is, it will be appealed," said spokesman Steve Mavigilio, who noted no anticipated settlement would be forthcoming over the weekend.

Despite continuing power alerts and the lifting at mid-week of the federal government's emergency order requiring power to be sold into the state, the power supply appeared to be adequate last week, thanks in part to a court injunction requested by the Cal-ISO requiring Reliant Energy, AES Pacific, Williams and Dynegy to continue supplying the state. The Cal-ISO requested the injunction when the federal mandate expired and the federal judge in this case set the injunction to continue until Feb. 16.

Negotiations between Gov. Gray Davis' team headed by a former utility executive and the two utilities last week were centered on what the two energy companies would give to the state in return for state-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 San Francisco, who was not optimistic Friday that any resolutions were close at hand.

And in another action, Duke Energy filed a lawsuit against Davis' action earlier this month commandeering the defaulted short-term forward spot contracts relinquished in the defunct California Power Exchange by the two utilities.

Davis and his Democratic-controlled state legislature addressed the state's precarious electricity supply situation with various proposals to greatly increase both conservation and in-state generating capacity by this summer, so the focus at week's end turned to the two financially neutered utilities, whose leaders were giving grudging indications that they might sell some of their infrastructure assets, such as their 26,000 miles of transmission lines and interconnections if they received what they considered fair market value.

Michael Peevey, the former Southern California Edison president who is the governor's chief negotiator, indicated late Thursday that he thought the utilities were warming up to the idea of selling off assets and perhaps giving some stock options through state-backed warrants, too.

"We anticipate that we will be negotiating over this weekend," a spokesperson for Southern California Edison said Friday. Meanwhile, the CEO's of the parent companies and two utilities appeared at a state legislative oversight hearing Friday in Sacramento, which attempted to grill regulators, utilities and other stakeholders on the causes and effects of the state's lingering electricity woes.

Last week was marked by Davis and the state Assembly leader Thursday announcing multiple new laws to push accelerated generation and conservation efforts that are envisioned to unfold at a frenetic pace in the weeks and months ahead.

As part of the actions, including a half dozen executive orders and proclamations, the governor sent letters to President Bush and FERC Chairman Curt Hebert, seeking various federal actions that will help facilitate the state's all-out generation and conservation efforts aimed at heading off rolling blackouts this summer.

Permitting Requirements Relaxed

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

In a wide assortment of moves, including putting a SoCal Edison power plant operations executive in charge as the state's "energy construction czar," Davis committed the state to: (a) streamlining the siting of new temporary peaking generation plants through the state water resources department; (b) accelerating baseload plant construction through bonuses and cutting red tape; (c) maximizing the output of existing plants; (d) providing economic incentives through rebates and tax breaks to renewable energy and distributed generation plants.

Citing his Jan. 17 declaration of an energy emergency in the state, Davis asked President Bush to have the federal permitting process streamlined for the siting and operation of power plants in the state. Davis also wrote FERC's Hebert to ask for a further extension of an existing waiver regarding FERC-mandated operating and efficiency standards for qualifying facility (QF) cogeneration plants. The governor asked for the waiver now in effect through April 30 to be extended through Oct. 15.

Only a few hours earlier, Democratic state legislative leader of the Assembly Robert Hertzberg unveiled a package of nine proposed pieces of state legislation --- four designed to increase supply by up to 7,600 MW over the next four years, and the rest aimed at increased conservation programs that would eventually save the equivalent 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 for these plants, many of which would be peaking facilities;

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

conservation measures which would provide more incentives for residences, schools and government facilities to replace inefficient appliances and equipment, and spend $100 million to establish a statewide brigade of community nonprofit agencies to distribute low-energy light bulbs to residences.

Generators Form Creditors Committee

Late Friday three of the largest power producers currently being stiffed by the Cal-ISO and the utilities, Reliant Energy, Dynegy and Mirant, said they are forming a creditors committee to explore options for receiving payment. The group's move is in response to what they characterized as slow progress toward the implementation of a comprehensive long-term solution to California's electricity crisis.

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

Richard Nemec, Los Angeles

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