California legislators Thursday passed a new law with a $10billion price tag authorizing the state to sign long-termelectricity contracts and also stabilize the financially troubledtwo largest investor-owned utilities. The governor hurried to signthe measure yesterday afternoon before departing to attend aWestern Governors’ Association energy roundtable with the top BushAdministration Friday in Portland, OR.

“This marks the first critical step on the road to recovery inCalifornia’s energy challenge… without raising rates,” Gov. GrayDavis said. “But we shouldn’t kid ourselves, big challenges stilllie ahead. We have to find other ways to conserve electricity andincrease generation capacity.

“I believe there are ways to speed up the permit process,streamline it further, increase transmission capabilities, buildnew power plants, and with no violence to the environment.

“With this law, I can assure everyone California can and willpay its bills.”

Gov. Davis said he directed his power contract negotiators to dofour things: 1) secure short- and long-term contracts so the staterelies on the spot market for no more than 5% of its supplies; 2)finalize the bids received Jan. 23-24 no later than Feb. 5; 3)extend the earlier request for bids to secure more short andlong-term proposals; and 4) work with the utilities to acquiretheir options for short-term power at reasonable prices. Davis saidhe is prepared for the DOE not to extend its current emergencyorder mandating that suppliers do business with California.

Lawmakers and the governor indicated there still was a lot ofwork, and the governor acknowledged that there has been “enormouspressure” on Republican leaders who he says “by and large supportthe direction.”

Gov. Davis indicated that the state still does not havesufficient amounts of long-term bids, but that his negotiators wantto sign the best deals they have at this point by Monday and thenuse them as leverage to sign up the additional supplies they need.

“The chance of rolling blackouts should be remote for thesummer,” the governor said, based on a massive conservation efforthe announced Thursday and a new initiative he will announce nextweek to site more new generation through peaking power anddistributed generation among other steps.

Before finally getting a bill to sign, Gov. Davis early Thursdayafternoon announced the outline for an $800 million statewideenergy conservation program, including incentives to reducecommercial lighting. He also signed an executive order directingreductions in outdoor retail lighting by March 15.

The action Thursday was to add $404 million to an alreadydesignated $424 million conservation effort announced earlier bythe governor. In total, he said the results of the program are togive the state an additional 3,200 MW savings by this summer whenpower supplies are expected to be even tighter than they are thiswinter.

“Our campaign to reduce demand and improve efficiency willtranslate into real reductions now and into the summer, when weneed it most.”

Davis also announced that the McDonalds fast food chain hasjoined the state’s energy conservation campaign by printing 4million tray liners for its 1,100 California outlets with energyconservation messages under the heading, “Flex Your Power.”

A different variation on that theme was provided by some of thestate’s leading utility consumer watchdog groups who teamed up tocriticize the utility’s alleged financial near-insolvency as aconspiracy and to urge the legislature not to provide a bailout.

ÿConsumer activists went on the warpath Thursday in SanFrancisco, calling the recently released independent audits ofCalifornia’s financially threatened investor-owned utilities “veryrevealing reports” that the state legislature should use as thebasis for refusing to grant any bail outs to Southern CaliforniaEdison Co. and Pacific Gas and Electric Co.

“The audits demonstrate no need to bail out the utilities,” saidBob Finkelstein, an attorney with the consumer group TURN.

Noting he thinks “crimes have been committed” and the utilitiesshould be “prosecuted to the full extent of the law,” HarveyRosenfield, director of the Foundation for Taxpayer and ConsumerRights, accused the holding companies of reaping excessive profitsfrom the utilities and going on a “spending spree” internationallywhile their utility subsidiaries were preparing for the threat ofbankruptcy.

The consumer advocates attacked everything from the state’ssevere power shortage to the utilities’ near insolvency as part ofa major conspiracy between Wall Street and the utilities. In themidst of last summer crisis, Rosenfield said, PG&E utility CEOGordon Smith exercised stock options that netted him $31,000.

“Everyone is interested in their own greed; no one is lookingout for the ratepayers,” said Rosenfield, who reiterated that ifthe legislature provides a bail out consumer groups will sponsor astatewide ballot initiative to overturn it in 2002 generalelections.

In an SEC filing Thursday, PG&E indicated that its utilityhas defaulted on a combined $726 million in commercial paper andthat the utility intends to make only partial payment toward debtapproach $1 billion.

While state lawmakers struggled to come up with a long-termsolution to the state’s power crisis yesterday, cash strappedPacific Gas & Electric Co. disclosed that will only be able tocover about 15% ($161 million) of payments due to qualifyingfacilities ($437 million) and the California Power Exchange andCalifornia ISO ($611 million).

PG&E said its intent is to “pay its ongoing costs of doingbusiness while seeking resolution of the wholesale power crisis.”In the meantime, it will examine restructuring its bank loans andcommercial paper. The company also said it may take six months forholders of defaulted debt to get back their principal.

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