While careful not to use the word “re-regulation” CaliforniaGov. Gray Davis on Monday clearly indicated his desire to give thestate more direct control over energy operators, utilities and theusage of all the state’s 34 million residents (see Daily GPI, Jan. 9). He barely had time to clarify orget reactions for his plans before flying to Washington, D.C., wherelate Tuesday he huddled with Clinton Administration and industryofficials.

Rumors and indications circulating in the nation’s capital andspreading back to California anticipate some change at the federallevel that would provide positive signals about the state’s and itstwo principal utilities’ ability to obtain more wholesale price andsupply stability in the immediate weeks ahead. At least one of thestate’s utilities, Pacific Gas and Electric Co., has indicated thatthe electric crisis and its erosion of its cash flow is spillingover into its natural gas business where interstate suppliers arerefusing to extend existing contracts because of the utility’suncertain credit situation.

Wall Street reacted coolly to Gov. Davis’s plan because of itslack of specific details addressing the utilities’ dire financialsituations. Generally, financial analysts liked the governor’slong-term commitment to keeping the utilities whole but weredisappointed that there were no short-term steps provide them withbadly needed cash.

On Tuesday, PG&E Corp., the utility holding company, andEdison International, parent to Southern California Edison Co.,continued to experience a decline in their common stock value.PG&E fell 50 cents to close at $13.50 (a year earlier it soldfor $21.81) and Edison fell 88 cents to close at $11.12 (a yearearlier it closed at $28/share).

Initial reactions by the state’s troubled utilities to thegovernor’s speech were favorable. However, the governor attackedgenerators, stating emphatically that he would “use the power ofeminent domain” to prevent them from “driving consumers into thedark and utilities in bankruptcy.”

The governor’s long-term solution to put the state back incontrol of its “energy destiny” will require either a “joint powersauthority among the state and its 30 municipal utilities to developthe additional power we need, or a California public powerauthority that can buy and build new plants.” Davis indicated hewould work with the legislature and business interests to determinewhich is the best option.

A spokesperson for the City of Los Angeles Department of Waterand Power, the nation’s largest municipal utility, said thegovernor’s plan had “several good recommendations” and it is “timeto get the state (government) more involved.”

An executive with one of the national energy concerns that ownsmultiple power plants in the state said his firm is not concernedwith a state authority or other proposals as long as privatedevelopment still has an opportunity to compete and the existingplanned private investment is not foreclosed or discouraged.

“If at the end of the day we have to contract with the state tosell our power — we won’t like it, but we will do it,” said thegenerator, noting that the best thing the state could do was offerlow-cost financing for generation and transmission projects.

Edison and PG&E’s utility in short prepared statementspraised the governor for recognizing the importance of theirfinancial health. However, PG&E expressed concern that actionwasn’t being taken quickly enough. “Unless strong steps are takenover the next few days,” the ongoing crisis will prevent theutilities’ from buying electricity and gas for their customers,PG&E said. In response to the proposal for a power authority,Edison said it is ready “to support any reasonable approach toachieving electric service reliability at affordable customerrates.”

San Diego Gas and Electric Co.’s spokesperson called thegovernor’s plan “practical and achievable,” but some of the detailsstill need to be fleshed out.

For the longer term, Davis reiterated the need for more newpower plants, repeating an often-used statistic about Californianot building a new plant for the 12 years before he took office in1999, but that in the past two years of his administration, nineplants have been licensed and five are now under construction. (Thegovernor does not add that many of the nine plants now licensedbegan their approval processes with the impetus of electricityderegulation in 1996 and 1997 under the previous stateadministration.)

Davis has proposed low-interest financing for new peaking plantsand re-powering of existing plants for facilities that will committheir output to the state at “reasonable rates.” In addition, he isproposing that the state’s Department of Water Resources, one ofthe state’s single largest users and generators of electricity,expand the generation under its control and that the state’smassive 141-campus university, college and community college systembecome “energy independent” through cogeneration and other means.(Some campuses, such as UCLA already are virtually independent,with agreements to provide excess power to the City of LADWP.)

Underscoring the governor’s remarks, the California IndependentSystem Operator (Cal-ISO), whose stakeholder board the governorproposed replacing, called a Stage One power alert because itexpected reserve levels to drop below 7% at the peak hour Mondayevening, and it called a second one early Tuesday morning, citingup to 10,000 MW of generating capacity out of service for plannedor unplanned maintenance. These are the first such alerts of theNew Year, and they relate also to the state’s continuingtransmission bottleneck in the center of the state, restricting howmuch power can be moved from the south to the north.

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