- The Washington Times - Wednesday, January 10, 2001

The Clinton administration searched for ways to broker an agreement last night to ease California's energy crunch and avert the growing threat of bankruptcy for the state's two major cash-starved utilities.

High-level administration officials and all the major players in the California power crisis met behind closed doors from 5 p.m. until after midnight to try to fashion a framework for resolving the problems facing the state's electricity supply system.

None of the participants talked to reporters as they entered the Treasury Department, where the session was held.

Federal options appeared to be few, and one key Republican senator already has warned against a bailout for the state, whose five-year experiment with electricity deregulation was described this week by Democratic Gov. Gray Davis as a "dangerous and colossal failure."

The potential economic fallout from California's power problems became more apparent yesterday when Intel Corp., the world's largest manufacturer of computer chips, announced it would no longer expand its plants or build new ones in the state until the electricity problems including sporadic threats of rolling blackouts and soaring prices are resolved.

"Unless this energy issue is addressed … it won't be just an issue of whether employers expand their operations here. It will be an issue of whether they continue to build their products here," warned Carl Guardino, president of the Silicon Valley Manufacturing Association, representing 190 California technology companies.

Last night, the manager of California's electricity grid declared a Stage Two power emergency temporarily as power plants shut down power to some commercial customers and the state received only limited imports from the Pacific Northwest.

In yesterday's meeting, the Clinton administration hoped to play "an honest broker role" among the parties trying to resolve the state's growing energy problems, said Gene Sperling, President Clinton's chief economic adviser.

The private meeting brought together state officials, including Mr. Davis, regulators and legislative leaders; the state's three largest electric utilities; nine of the major power producers and brokers, some of whom have been accused of price gouging; and the chairman of the Federal Energy Regulatory Commission, which has refused to impose wholesale price controls sought by Mr. Davis.

"We have very little direct authority over any of the parties," Mr. Sperling said. "Our main role is to hope that by convening the parties and playing an honest broker role, we might be able to help the parties make some progress together."

Mr. Sperling was joined by Energy Secretary Bill Richardson and Treasury Secretary Lawrence H. Summers.

The session was widely viewed as an attempt by Mr. Davis to enlist administration help in calming concerns on Wall Street and among the banking community over threats to the solvency of the California utilities.

Both Pacific Gas and Electric Co. and Southern California Edison Co., which together serve about 25 million people, have teetered near insolvency, paying more than $9 billion more for power than what they have collected from customers since June.

Because California's electricity market is actually half-regulated, the utilities have had to pay wholesale electricity prices that have soared fivefold, but they have not been able to pass on the increases to customers because of state restrictions.

Last week, the state public utility commission agreed to a temporary 7 percent to 15 percent rate increase, but the utilities said that was not nearly enough. The companies had sought increases up to 30 percent.

On Friday, the crisis hit Wall Street, contributing to a 250-point drop in the Dow Jones Industrial Average, after major credit agencies concluded the state's huge utilities are within weeks of bankruptcy and downgraded their credit ratings.

The utilities' stock continued to drop in trading yesterday shares of PG&E; sank from $14 to $13.18 and SoCal Edison's parent company, Edison International, fell from $12 to $11 as Wall Street confidence in the two companies wavered.

"There is no easy solution," Mr. Davis declared Monday night as he outlined California's energy woes in a State of the State address before flying to Washington.

He called for creation of a new public agency to build more power plants and declared that electricity deregulation was "a dangerous and colossal failure" with no quick fix. He renewed his charge that wholesale power generators which sell the electricity to the utilities that supply power to California residents and businesses were price gouging, and he threatened to seize their assets if they don't stop.

Top executives of several of those generating companies, including Enron, Dynegy and Duke Power, participated in the closed-door session in which they were expected to strongly defend their pricing practices and reject charges of price gouging.

Mr. Davis and the utilities have been frustrated because federal regulators have declined to intervene and regulate wholesale prices for electricity and natural gas flowing into California.

The governor "would like federal regulators to step up to the plate and set price caps," said Steve Maviglio, a spokesman for Mr. Davis.

James Hoecker, chairman of the Federal Energy Regulatory Commission, has maintained that the state's failure to build any new power plants in a decade is the root cause of the crisis.

Hanging over the talks was the fact that the Clinton administration has little more than a week left in office and President-elect George W. Bush has said little about California's power problems.

"The president-elect's focus is on a comprehensive national energy policy," spokesman Ari Fleischer said yesterday. Mr. Bush wants to increase domestic supplies of natural gas, coal and oil, all of which can be used to run power plants.

At least one Republican senator already has made clear that many Republicans have little taste for a federal bailout.

"California's politicians failed in refusing to build new power plants for a decade while population and demand exploded," declared Sen. Phil Gramm, Texas Republican. He promised to "vigorously oppose" any federal intervention to "take California's politicians off the hook."

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