- The Washington Times - Wednesday, December 27, 2000

California Gov. Gray Davis last night threatened to use his "emergency powers" against power-generating companies because of skyrocketing electricity prices and the 2-month-old threat of blackouts in the nation's largest state.
Just hours after an unusual meeting with Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Lawrence H. Summers to discuss the state's burgeoning electricity crisis, Mr. Davis warned a national TV audience that "There are certain emergency powers I have. If I have to use them, I will."
Among the actions he could take if he declares a state of emergency is calling out the National Guard to take over the power plants as long as the emergency lasts.
Mr. Davis, frequently mentioned as a possible 2004 Democratic candidate for president, blamed power-generating companies that have purchased many California plants under the state's 1996 deregulation plan for the crisis.
"The problem is that the generator can charge anything they want today and the only people that have control over them are the [Federal Energy Regulatory Commission], which has refused to take any control over them," he said in an appearance on the "Nightly Business Report" on PBS.
"I am not going to let these generators, making eight or nine hundred percent [profits), frequently gaming and market-sharing the system unduly, drive California to its knees," he said.
He also warned the power-generating firms that "if deregulation fails in California, deregulation is over in America."
Consumers in California this winter are faced with a choice between power shortages and skyrocketing electricity bills, while the state's utilities are veering toward bankruptcy because of the astronomical prices they have to pay to import the energy needed to supply the state.
Also yesterday, the parent company of Southern California Edison Co. revealed that it wants to raise consumer electricity rates by almost one-third, effective next week.
Many California businesses, including vital Silicon Valley companies that have driven growth in the nine-year economic expansion, are faced with paying the escalating electricity bills or shutting down and laying off workers.
"My constituents are the people and businesses of California," Mr. Davis said last night, "and I want to make sure they prosper and contribute to the national economic growth, rather than are the victims of a failed [deregulation] experiment."
Signs that the California crisis is spilling over to the rest of the economy already have emerged. This winter's record-high prices for natural gas are partly the result of a leap in demand for gas from California utilities, which must use the clean-burning fuel to meet environmental regulations.
Other Western states have seen their electricity prices skyrocket as utilities divert their electrical supplies to California, many of them under orders to do so by the Clinton administration. Any bankruptcy by California utilities threatens to destabilize already-troubled financial markets.
Mr. Davis said he requested the unusual two-hour meeting with Mr. Greenspan to seek advice on handling the situation. Afterward, he said Mr. Greenspan assessed the crisis as "one of the most intractable problems he's seen."
He said he told the federal officials he would do his best to promote energy conservation and build power-generating capacity to avert a crisis.
Analysts said Mr. Greenspan and Mr. Summers likely had some pointed advice for the California Democrat, who with state regulators must decide early next month whether to let the failing California utilities pass on their escalating costs to consumers.
Mr. Davis has blamed the crisis on "greedy" power generators who are exploiting the recent deregulation of wholesale power prices to "gouge" California utilities and consumers.
But Mr. Greenspan and Mr. Summers believe in free markets and may have tried to steer Mr. Davis away from such tactics, analysts said.
For Mr. Greenspan, much is at stake. He has expressed his concern often about this year's energy crisis, which started in the spring with a spike in oil and gasoline prices and led this winter to record high prices for the oil and natural gas that most Americans use to heat their homes.
In a speech earlier this month, the Fed chairman called such persistently high energy prices one of the "untoward events" that pose a threat of derailing the record-long economic expansion.
Beyond the immediate energy crunch, analysts say, the California situation is creating serious financial risks because a major bankruptcy and default by one of the California utilities would roil already traumatized markets.
The gap is growing between the the soaring rates for imported electricity that the Pacific Gas & Electric Co. (PG&E;) and Southern California Edison utilities must pay in the largely unregulated spot market and the fixed, low rates for electricity that regulators have mandated for most consumers in California.
In yesterday's filing, Edison International told the Securities and Exchange Commission it wants to raise consumer electricity rates by 30 percent on Jan. 4.
The plan also has a trigger mechanism that would, under certain conditions, raise rates by another 5 percent every six months. The filing limits the increase to 10 percent for low-income customers.
Lobbyists for consumers and small businesses called the filing a negotiating tool to influence a meeting of state regulators.
"They're trying to use Wall Street as a tool to influence California policy," said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights.
Jim Conran, the vice president for government affairs with the California Small Business Association, said his group would support a "reasonable" rate increase, in the interests of "price predictability," but could not say whether his group would support a rate increase of that size.
The state utilities commission is studying rate increases so Southern California Edison and PG&E; can stave off bankruptcy, but regulators and politicians like Mr. Davis face a stiff public backlash if they agree.
Utilities say they will have to start rationing electricity if they are not granted the rate increases.
The regionwide cap on spot market prices that Mr. Davis advocates would have to be imposed by the FERC.
The agency has refused to impose such restrictions since the nation began moving away from price controls on electricity. Mr. Davis did receive some temporary help from the Clinton administration, which just before Christmas issued an order instructing Western utilities to make power available to California.
Many out-of-state utilities are reluctant to sell power to California utilities because of their teetering finances. Wall Street ratings agencies are threatening to downgrade the California utilities' debt, making it impossible for them to get loans to pay for imported power.
While Mr. Greenspan has little direct control over the situation, analysts said he no doubt is using his considerable influence to persuade Mr. Davis to face hard economic reality and approve a rate increase, which would promote conservation.
"I'm sure the advice he's giving him is to get on with letting the market work," said Ron Gold, analyst with PIRA Energy Group in New York. "There really is no other way out."
Thomas D. Elias reported from Los Angeles.

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