California Gov. Gray Davis “delivered” on his plan to buy outthe transmission systems of the financially-troubled investor-ownedutilities in the state Friday, outlining the framework of a deal,but with no dollar signs attached and no on-the-record agreementswith the utilities.
The plan is a “buyout, not a bailout,” the governor said and heclaimed there would be no increase in utility rates to carry outthis proposal.
Also on Friday, President George W. Bush ordered five federalagencies to speed up the permitting process for the siting andoperation of power generation facilities in the state. “The federalgovernment should make every effort to work with California and tohelp its citizens” during the current power crisis, he said.
The governor said high level negotiations are on-going, and heexpects to have something to announce early this week in terms ofthe progress of those talks. He claimed two of the three CEOs forthe major private sector utilities are in favor of selling thetransmission system, assuming a mutually acceptable price abovebook value can be agreed upon.
The governor’s plan, if eventually carried out in new laws andregulatory policy, could shackle the state’s investor-ownedutilities for years to come and dampen private investment inCalifornia’s energy market, according to some observers. Others —particularly consumer advocates — think it places too much of theburden on utility ratepayers and/or state taxpayers.
“This is a balanced, fair transaction that is good for theutilities and good for the ratepayers,” Davis said, noting that hethinks the state legislators are all “basically on the same page,”although not in agreement with every detail. Legislation, he said,should be passed in March to support the plan.
Amazingly at one point, Davis said that if he were willing toraise rates, “I could have solved this whole thing in 20 minutes,”but he remains adamant against any further retail price increases.
Without an overall estimated price tag yet, elements in thegovernor’s plan include:
In addition to the transmission and generation requirements andsales, the utilities in still-to-be-resolved negotiations areexpected to drop all of their lawsuits and regulatory cases; makeenvironmental concessions on their hydroelectric system watershedacreage and collect $1.5 billion paid to utility holding companiesfor income taxes that were not paid out by the holding companiesdue to wholesale power cost losses.
Reactions and interpretations were varied. In a toughly wordedspeech last week, former FERC Chairman James J. Hoecker warnedCalifornia officials not to expect the Commission to sit idly bywhile the state moves to assume control of power transmission fromthe federal government.
“If California wants to create a state-owned wires companywithout the FERC, they have another thing coming,” said Hoecker atthe Cambridge Energy Research Associates’ (CERA) conference inHouston last Thursday.
Hoecker, who stepped down as FERC chairman last month, also saidhe disagreed with the Bush administration’s hands-off approach tothe California power crisis. “This is a national problem andWest-wide [regional] problem with consequences for the wholecountry,” he noted, adding the state “should not be allowed to goit alone by other western states or federal regulators.”
In a statement issued late Friday, Pacific Gas and Electric Co.said it “wanted to make clear it is not seeking a rescue or abailout. We are asking the state simply to follow the law, whichallows us to recover wholesale power costs incurred for ourcustomers, and which recognizes that our rate freeze should haveended last summer. Any solution must be fair both to shareholdersand ratepayers. The Governor’s framework does not yet meet thisobjective.
“Our team continues to be willing to negotiate to achieve a fairsolution, and our Chairman remains personally available to meetwith the Governor any time on this issue.”
The California Independent Energy Producers (IEP) generally”applauded” the governor for addressing the problem, but they wantmuch faster action so many of their members — particularly smallrenewable plants and cogernators — can get paid.
“Some of QFs are running into significant fuel problems as aresult of not getting paid,” said Jan Smutny-Jones,Sacramento-based IEP executive director. “To provide a firmfoundation going forward it is absolutely essential we get theutilities solvent.”
Smutney-Jones said he thinks the state is running out of time,and he is concerned about what form the proposed state transmissionownership takes. If it is “passive,” he is more accepting, but ifthe state is going to be a regulator and operator at the same timeit is the largest energy buyer in the West, he sees some majorproblems, and he thinks FERC, which would have to approve a statetakeover also is likely to look negatively on this approach.
When questioned about what is holding up a solution inCalifornia, Smutny-Jones said he couldn’t put the blame on oneindividual or issue, but he did say that once the politicaldecision was made against having rate increases – as all thesurrounding western states are now doing – “it limited the abilityof policymakers to have theÃ¿flexibility they needed to fix this ina relatively short time.”
Many Republican state lawmakers, and even a Democrat millionairebusinessman who opposed Davis when he ran for his party’snomination for governor in 1998, are skeptical about the plan forthe state to assume ownership of the transmission system.
Al Checchi, the Democrat businessman, wrote in a Los AngelesTimes opinion column Friday that all of the other states likeCalifornia have faced skyrocketing costs in all forms of energy,but unlike his state, the others have passed on those costs toconsumers. “These are the ways well-managed states handle a problemlike this,” Checchi wrote. “So far, only California has managed toproduce a crisis.”
Checchi argued in his Op-Ed article that “California politiciansand bureaucrats cannot reasonably expect to purchase, finance,transmit or generate electricity more efficiently than theirprivate-sector counterparts,” Checchi wrote.
In anticipation of the plan, leading state consumer groupsreleased their “litmus test” for judging the governor’s proposal,offering 10 criteria, most of which they have stressed for months:no “bailout,” protection for low-income consumers from any rateincrease, purchase of utility assets at no more than book value,”substantial, immediate” contributions to utility companies fromtheir parent corporations, sacrifice by utility shareholders,discount payments to traders and generators and various otheroperating, financial, legal, environmental and labor restrictionsmust be placed on the utilities.
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