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Governor seeks caps, refunds on electricity

Davis makes other points in arguing his case for how to avert a utility crisis in California.

By Robert T. Garrett The Press-Enterprise SACRAMENTO

Until the spot market for electricity grows less volatile, California utilities should be permitted to hold on to the power plants they haven't sold and should be nudged into signing more long-term supply contracts, Gov. Davis said Friday.

The governor also ordered state regulators to cut red tape so businesses can build small power-generating plants near factories and office parks, and to promote new pricing plans which offer businesses lower rates if they agree to reduce consumption when usage peaks.

In a letter to the Federal Energy Regulatory Commission, Davis repeated his demands that federal regulators impose a wholesale price ceiling on wholesale power sold in California. He again asked them to order that refunds be paid by energy merchants he said gouged consumers in San Diego last summer.

"If you do your job," Davis wrote, "the steps I have to take can be . . . limited in scope."

Davis said he believed a "free market applied to electricity can work."

But he did not rule out proposing more drastic actions if he felt they would be necessary to make sure "the sellers in the wholesale markets will not victimize Californians again."

Earlier this week, consumer activist Harvey Rosenfield urged Davis and lawmakers to restore regulation of privately owned electric utilities and gradually move California to a state-owned system of generators and lines.

Davis did not mention public power or re-regulation in his letter.

He also sidestepped the question of whether ratepayers should be billed retroactively for $6 billion in losses that Southern California Edison and Pacific Gas Electric say they've piled up since summer.

The two huge private utilities currently sell power at fixed prices much lower than wholesale costs. The power companies agreed to the rate freeze as part of the deregulation law passed in 1996, when power prices were dropping so much the freeze looked attractive.

Public Utilities Commission President Loretta Lynch, a Davis appointee, said "there's no doubt that the utilities are hurting."

But she said the state's problem extends beyond utilities' financial health to broader concerns about economic prosperity and fairness.

She declined to say whether the two electric giants should be allowed to back-bill their customers.

Davis outlined the "first steps" he wants the state to take to reduce chaos in California's deregulated electricity market.

They include passing two new state laws. One would let new power plants meet clean-air standards by trading emissions credits.

Another would make sure two public-benefit corporations created under deregulation -- one runs a commodity exchange for electricity, and the other oversees transmission systems -- aren't dominated by special interests.

But Davis said he has to see what federal regulators do about California before offering "a complete plan."

James Hoecker, chairman of the federal commission, has said the price caps Lynch and Davis demand would discourage private investment in new power plants by throwing in the towel on deregulation.

Complicating the picture is the unresolved presidential election.

If Texas Gov. George W. Bush occupies the White House, he will appoint people to the federal energy commission who champion deregulation, said Mike Florio, a lawyer for the Utility Reform Network, a consumer group based in San Francisco.

Florio predicted Bush appointees would have no desire to extricate Davis, a Democrat and possible presidential contender in 2004, from the quagmire of a malfunctioning state power market.

"Why is (Bush) going to do anything that makes Gray Davis look good?" Florio said.

D.J. Smith, a Sacramento lobbyist for large industrial users of electricity, who pushed hard in the early 1990s for deregulation, praised Davis for urging the federal commission to adopt a "pro-consumer" position.

"He's also stepping up and saying, `We're going to do some things in California to help ourselves,' " Smith said.

A spokesman said Edison had no comment on Davis' letter.

Robert T. Garrett can be reached in Sacramento at (916) 445-9973 or by e-mail at

-- Martin Thompson (, December 02, 2000

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