Even with the ink still not dry and final allocation stillundetermined on California’s record $5 billion electricity rateincrease approved Tuesday, state officials are already worried thatthe added revenues and state-backed bonds that will follow will notbe enough to pay the state’s wholesale power bill over the next 12to 18 months. However, those dire forecasts assume little or norelief from relentlessly high wholesale prices.

Political and regulatory leaders still cling to the notion thata federally imposed cap on western wholesale prices would bringthat relief, and others think if the market is allowed to work witha lifting of retail price caps in the state and concerteddemand-side management, prices eventually will come down later thisyear.

California Gov. Gray Davis Wednesday repeated his call for theFederal Energy Regulatory Commission to order refunds from merchantgenerators selling electricity to the state and to order awholesale price cap “until the marketplace becomes competitive.”

The governor once again said that FERC could help his state meet”its energy challenges” by (a) taking interim action to stabilizewholesale power prices in California; (b) refunding what heconsiders “excess charges” that have been found to be unjust andunreasonable prices as alleged recently by the state grid operator,Cal-ISO; and (c) approving the state’s purchase of theinvestor-owned utilities’ transmission grid assets.

Davis reiterated that he thinks FERC has already determined thatthe prices charged have been “unjust and unreasonable,” but it hasnot ordered refunds. He blamed the excess charges, rather than thelegislated rate freeze and state wholesale power deregulation plan,for “virtually bankrupting” California’s two largest private sectorutilities.

On the supply front, the state held a second “energy fair” inSouthern California Thursday in an attempt to bring more temporarypeaking power online for the summer. A similar session March 15 inSacramento drew 100 companies and 200 participants, according tothe governor’s office.

While economists and many energy experts – some among theadvisers to state officials – have said the rate increase was longoverdue, there is a question of whether it will be enough tosupport the state bonds that will be sold later this spring. Onestate official indicated Thursday it may not be enough, but thestate treasurer now thinks a $10 billion revenue bond offering, thelargest public bond sale ever, will do the trick.

Kathleen Connell, the state Controller who is one of ahalf-dozen major candidates running for Mayor of Los Angeles,Wednesday caused a stir by arguing that the state may be exposingitself to long-term electricity costs it cannot cover under currentrate increases and bond scenarios. She said additional rateincreases might be necessary. In reality, no one knows for surebecause the wholesale power prices have defied most predictionsover the past nine months in California and throughout the westernstates.

Before the state goes to market with its bonds in May, more datashould be forthcoming from the state water resources department andDavis, along with a final determination on the CPUC allocation ofthe latest rate increase. From that information, a better estimateof the impact of conservation can be made and that will be criticalfor projecting supply and demand and ultimately future spot powerprices.

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