Frustrated by inaction at the federal level on wholesale power price caps, California gubernatorial staffers Wednesday tossed their latest grenade on the public negotiations table by supporting a proposed state windfall electricity profits tax. They said Gov. Gray Davis will consider signing such a new law if it hits his desk. But they carefully drew short of saying categorically that the governor will sign a bill or that he is lobbying for one.

Davis’s chief energy adviser and power contract negotiator David Freeman said the governor has made it clear “if the generators don’t behave” (by voluntarily moderating their prices), he will consider signing such a law, which is also expected to include the possibility of the state being authorized to seize private sector power generation plants that are found to be charging excessive prices.

The carefully staged conference call by Davis’s press office came at the same time California’s transmission grid operator for the first time in two weeks resumed Stage One and Two power alerts because of a combination of higher-than-expected temperatures, a 3,000-MW dip in net power imports (to 4,000 MW), and almost 10,000 MW of generating capacity off-line for planned and unplanned maintenance.

At the same time, the state got some positive news when San Jose, CA-based power plant developer/operator Calpine Corp. convinced the mayor of its home city to support the controversial 600-MW Metcalf Energy Center power project in the heart of the state’s electricity-intense Silicon Valley. This paves the way for the San Jose city council on June 5 to support the project, which is on the verge of obtaining final state approvals. Subsidiaries of Calpine and San Francisco engineering giant, Bechtel, are proposing to jointly build and operate the plant

While the state activities allow Davis and the state legislature direct control of supply related issues, they have no control over the continuing high wholesale prices, and the governor’s energy team increasingly is looking for ways to force merchant generators into moderating prices and eventually developing a comprehensive settlement that would allow them to forgive some of the hundreds of millions of dollars of unpaid bills they are owed.

“If prices dropped, there would be no excess profits,” said Freeman, Davis’s head of statewide conservation programs and the assumed head of the state’s new public power authority once it is formed later in the summer.”We’re not trying to threaten people, we’re trying to appeal to the better nature of the people who want to do business here (in California) in the long run to moderate their prices. And we’re asking the federal government, as the cop on the beat, to get out there and do their job.

“What is happening is an outrage. The kind of money we are having to pay for electricity this summer is unbelievable. The economists who talk against price controls ignore the fact that we are talking about the oxygen of life (electricity) where the price of electricity has been controlled in America since the days of Thomas Edison.”

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