Monday January 22 6:58 PM ET

Calif. Struggles in 2nd Week of Power Crisis By Andrew Quinn

SAN FRANCISCO (Reuters) - California's power crisis lurched into its second week on Monday as officials in both Sacramento and Washington D.C. sought solutions to an energy shortage keeping the nation's most populous state on the brink of rolling blackouts.

With California in its seventh consecutive day of a power emergency on Monday, top officials in the new Bush administration met in Washington to discuss the worsening situation -- but promised little in the way of immediate help.

``The president continues to believe that the issue is mostly a California matter,'' Ari Fleischer, spokesman for President George W. Bush (news -web sites), told reporters.

But California Sen. Barbara Boxer (news - bio - voting record) introduced legislation on Monday that would cap wholesale electricity prices throughout the western region to help stabilize the volatile wholesale power market.

And in Sacramento, officials announced plans to safeguard the state's credit rating as it begins to pump hundreds of millions of taxpayer dollars intoemergency energy purchases.

``As we start signing checks here, let's make sure we know who is going to repay and who isn't,'' state Controller Kathleen Connell told a news conference.

Rolling Blackouts Remain A Threat

Meanwhile, power grid managers warned on Monday that extremely lowreserves of power for the seventh consecutive day meant that California could at any time experience a repeat of the rolling blackouts which last week hit hundreds of thousands of homes, factories and offices in the northern part of the state.

``The situation hasn't changed appreciably since last week ...supplies remain extremely tight,'' said Patrick Dorinson, a spokesman for the Independent Systems Operator, which oversees power distribution in the state.

The crisis, rooted in California's failed 1996 experiment with partial market deregulation, has already forced the state's two biggest utilities to the brink of bankruptcy and caused cascading economic effects.

Facing skyrocketing prices on the wholesale electricity market, but banned from passing those costs on to consumers, Pacific Gas and Electric Co., a subsidiary of San Francisco-based PG&E Corp ., and Edison International's Southern California Edison Co., of Rosemead, Calif., say they are now some $12 billion in debt and without sufficient credit to buy the power needed to keep electricity flowing to the 24 million people they serve. Both have said that bankruptcy looms.

Farmers, airlines and truckers are next in line to feel the fallout as the electricity shortage eats away at California's ability to supply the jet fuel, gasoline and diesel fuel that keeps key industries going at home and in surrounding states, according to industry analysts.

``The landslide has begun. The impact of California's electricity fiasco is not and will not be localized,'' said consultant Phillip Verleger.

Some analysts are worried the crisis in California, which accounts for one-sixth of the U.S. economy, spells a looming disaster for the nation --although most say it is just too soon to tell how bad the impact will be.

``At this point, if it were to be resolved quickly, I think the impact would be relatively minor,'' said Gary Thayer, chief economist at A.G. Edwards and Sons in St. Louis. ``If it continues and gets worse, it has the potential to be a drag on growth in the first quarter.''

New Administration Meets On Crisis

In Washington, the new secretaries of the treasury and energy met other senior Bush administration officials to discuss the California situation, White House spokesman Ari Fleischer said.

Energy Secretary Spencer Abraham is considering whether to extend two separate emergency orders, which expire at midnight on Tuesday, that require energy firms to sell electricity and natural gas to California's cash-strapped utilities.

Pacific Gas & Electric, saying its supplies of natural gas are dangerously low, has said that without extension of the federal order it may be forced to begin halting gas service to ''non-core'' industrial users -- around two-thirds of which are gas-fired power plants which help to supply electricity to northern California.

Sen. Boxer, meanwhile, sought to involve Congress by introducing a bill to cap wholesale electricity prices in the U.S. West. A similar bill was alsointroduced in the U.S. House of Representatives by Rep. Bob Filner. Both are Democrats.

``The electricity shortage experienced by California in recent months clearly demonstrates that a price cap must be imposed on the entire western United States to be effective,'' Boxer said in a statement.

The Federal Energy Regulatory Commission, an independent agency, approved a so-called ``soft'' price cap of $150 per megawatt-hour for California sales only. That approach, criticized by state officials, allows out-of-state power marketers to charge higher prices if they can justify them.

Calif. Officials Scramble To Limit Fallout

Facing the biggest crisis of his political career, Gov. Gray Davis last week ordered the state itself to step in with a $400 million plan to make emergency energy purchases.

But that proposal has been widely criticized as little more than a stop-gap solution, and Wall Street credit rating agency Standard & Poor's last week threatened to downgrade California's ''AA'' rating out of fears the state may be forced to spend far more on power supplies.

In response, California state Controller Kathleen Connell and State Senator Richard Polanco on Monday announced new legislation to place liens on the utilities' assets to provide collateral if they do not repay the state for power purchases.

The legislation, which Polanco was to introduce on Monday, will both protect taxpayers as well as the state's credit rating, Connell said. ``Senator Polanco and I are acting to safeguard the state's balance sheet,'' Connell said.

Officials were also scrambling to come up with ways to stave off bankruptcy for the utilities. Among the plans under discussion is a move to help the utilities cut their debt in exchange for state ownership of their hydroelectric facilities, valued at an estimated $5 billion.

The plan would allow the state to use the utilities' transmission, distribution and billing systems to get power directly to consumers. It also would privately refinance their existing debts for power purchases based on revenues provided within current rates.

-- Swissrose (cellier@azstarnet.com), January 22, 2001