Progress in Calif. Power Crisis

W A S H I N G T O N, Jan. 10, 2001 -- The major figures in California’s power crisisagreed to work to try to bring stability to the state’s electricitysystem, but six hours of discussions Tuesday produced no solutions.

“Progress was made. All sides gave a bit,” Energy SecretaryBill Richardson told reporters after the talks broke up shortlyafter midnight.

California Gov. Gray Davis also expressed optimism. “We can seelight at the end of the tunnel,” he said.

Stability vs Bankruptcy

High-level administration officials and all the major figures inthe California electricity wars met behind closed doors for sevenhours to try to fashion a framework for resolving the problemsfacing the state’s electricity supply system.

The parties agreed to technical meetings today and tohave all the principles meet again this weekend — a sign that someagreement were fashioned during the marathon discussions Tuesday atthe Treasury Department.

“The participants agreed on the need for cooperation tomaintain stability and avoid bankruptcy of California utilities,”a statement issued by the participants said.

Holding Prices Down... Maybe

Davis, who has accused electricity wholesalers of price gouging,said that progress was made in working out agreement on long-termcontracts to hold prices down, but he gave no further details.

The private meeting brought together state officials, regulatorsand legislative leaders; the state’s three largest electricutilities; nine of the major power producers and brokers; and thechairman of the Federal Energy Regulatory Commission, which hasrefused to impose wholesale price controls sought by Davis.

In addition to Richardson, also at the meeting were TreasurySecretary Lawrence Summers and Gene Sperling, the president’s topeconomic adviser.

Before the session began, Sperling said the administration hopedto play “an honest broker role” and for the first time bring theparties together to possibly develop a framework for resolvingCalifornia’s energy problems.

“We have very little direct authority over any of theparties,” Sperling told The Associated Press.

Bailout Unlikely for 'Colossal Failure'

Federal options appeared to be few, and one key Republicansenator already has warned against a bailout for the state, whosefive-year experiment with electricity deregulation was describedthis week by Davis as a “dangerous and colossal failure.”

The potential economic fallout from California’s power problemsbecame more apparent Tuesday when Intel Corp., the world’s largestmanufacturer of computer chips, announced it would no longer expandits plants or build new ones in the state until the electricityproblems — including sporadic threats of rolling blackouts andsoaring prices — are resolved.

“Unless this energy issue is addressed ... it won’t be just anissue of whether employers expand their operations here. It will bean issue of whether they continue to build their products here,”warned Carl Guardino, president of the Silicon Valley ManufacturingAssociation, representing 190 California technology companies.

The session was widely viewed as an attempt by Davis to enlistadministration help in calming concerns on Wall Street and amongthe banking community over threats to the solvency of theCalifornia utilities.

Caught in a Trap?

Both Pacific Gas and Electric Co. and Southern California EdisonCo., which together serve about 25 million people, have teeterednear insolvency, accumulating more than $9 billion in losses sinceJune. The utilities have seen wholesale prices soar fivefold, buthave not been able to pass on the increases to retail customersbecause of state restrictions.

Last week, the state public utility commission agreed to a 7percent to 15 percent rate hike, but the utilities said that wasnot nearly enough.

The utility stock continued to drop in trading Tuesday — sharesof PG&E sank from $14 to $13.18 and SoCal Edison’s parent company,Edison International, went from $12 to $11 — as Wall Streetconfidence in the two companies wavered.

“There is no easy solution,” Davis declared Monday night as heoutlined California’s energy woes in a state-of-the-state addressbefore flying to Washington.

He called for creation of a new public agency to build morepower plants and declared that electricity deregulation was “adangerous and colossal failure” with no quick fix. He renewed hischarge that wholesale power generators were price gouging, and hethreatened to seize their assets if they don’t stop.

Top executives of several of those generating companies,including Enron, Dynegy, and Duke Power, were participating in theclosed-door session in which they were expected to strongly defendtheir pricing practices and reject charges of price gouging.

Looking for Federal Intervention

Davis and the utilities have been frustrated because federalregulators have declined to intervene and regulate wholesale pricesfor electricity and natural gas flowing into California.

The governor “would like federal regulators to step up to theplate and set price caps,” said Steve Maviglio, a spokesman forDavis.

Hanging over the talks was the fact that the Clintonadministration has only a little more than a week still in officeand President-elect Bush has said little about California powerproblems.

“The president-elect’s focus is on a comprehensive nationalenergy policy,” spokesman Ari Fleischer said Tuesday.

At least one GOP senator already has made clear that manyRepublicans have little taste for a federal bailout.

“California’s politicians failed in refusing to build new powerplants for a decade while population and demand exploded,”declared Sen. Phil Gramm, R-Texas. He promised to “vigorouslyoppose” any federal intervention to “take California’spoliticians off the hook.”