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California and the West

Panel OKs Bills on State Purchase of Power Grid

Energy: Senate measures would authorize takeover of transmission lines and construction of generating plants. Backers say the plan is not a bailout of utilities.


SACRAMENTO — Nudging government toward an expanded role in the energy business, a Senate committee Tuesday approved two far-reaching bills paving the way for the state to buy California's sprawling electrical transmission grid and build and operate its own power plants.

The legislation aims to protect California from the crisis it faces today, a nightmare of supply shortages and sky-high power prices, said the bills' author, Senate leader John L. Burton (D-San Francisco).

"What we're trying to do here is give the state some influence and control over its own destiny," Burton said. "The idea is to provide affordable, reliable energy at times we need it most."

One of the bills authorizes Gov. Gray Davis to negotiate with California's beleaguered utilities about a state takeover of the transmission system, a transaction that could help them avoid bankruptcy. By paying anywhere from $3 billion to $9 billion for the 32,000 miles of electric wires, the state would provide the utilities with cash to help relieve their mushrooming debt.

"Some would call it a bailout," Burton said. "I would prefer to call it an infusion of capital."

Davis prefers the term buyout and said any state takeover of the grid "should be a moneymaker." Talking with reporters after a speech in Los Angeles, Davis said he hopes to announce a proposal Friday under which the state would receive the transmission system, a financial stake in the utility companies and some other asset--possibly some of the utilities' hydroelectric facilities--in exchange for billions of dollars in state cash.

"We will insist upon receiving commensurate, equivalent value for any value we confer on the utilities," Davis said.

The governor added that the utilities' parent companies--which have received, among other assets, billions of dollars in tax overpayments from Southern California Edison and Pacific Gas & Electric--should help bring the utilities back to fiscal health.

Tuesday marked the 29th straight day in which California endured a Stage 3 power alert, with energy reserves critically low on the grid serving most of of the state. Grid operators came closer than usual to triggering rotating blackouts, but by the evening hours of peak demand, officials at the California Independent System Operator were optimistic that conservation and power purchases would help them dodge outages.

Cal-ISO spokesman Patrick Dorinson blamed the power shortfall on a cold snap that boosted electricity consumption and on the shutdown of power plants capable of generating one-third of the state's winter peak demand.

Four years after electric utilities were partially deregulated in California, the state is caught in a tangle of skyrocketing energy prices, booming demand and short supplies. Battered by debt, the state's largest investor-owned utilities lack the cash and credit to buy power themselves, forcing the state to step into the electricity market.

For more than three weeks, the state Department of Water Resources has spent an average of $45 million a day purchasing power, as negotiators work to nail down long-term power contracts under a $10-billion program authorized by the Legislature.

Davis maintains that in recent weeks the state has made major progress toward solving the electricity crisis. Officials have signed four "very good contracts" with electricity providers, begun an $800-million conservation program and embarked upon an aggressive drive to get power plants built, he said.

In other developments Tuesday, the precarious financial condition of Edison and PG&E remained a top concern of utility-watchers as a grace period granted by banks that are owed money by Edison expired.

"We are now on a daily involuntary-bankruptcy filing watch," said Steven Fleishman, a utility analyst with Merrill Lynch & Co. "We believe that creditors will wait to see what plan the [governor] proposes, but time is short."

Edison formally asked a group of 23 banks for an extension of a 30-day period of forbearance on a $230-million default, Ted Craver, Edison International's chief financial officer, said in a conference call with debt holders. The banks had not yet responded, he said.

Several electricity generators have said they are willing to wait for the utility debt-relief plan that Davis and legislators have promised in the coming days, the governor's spokesman, Steve Maviglio, said Tuesday. "They have signaled to us that they have patience," he said.

Most of the action in the Capitol on Tuesday centered on Burton's two bills, both of which cleared the Senate Energy Committee and will go next to the Appropriations Committee. A third measure, SB 5X by Sen. Byron Sher (D-Stanford), which would provide $1.2 billion in taxpayer subsidies to consumers, government entities and businesses to help pay for conservation measures, also passed.

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