U.S. could be stuck with California utilities' debts

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From CNN

U.S. could be stuck with California utilities' debts, senator warns January 31, 2001 Web posted at: 1:46 p.m. EST (1846 GMT)

WASHINGTON -- California's major utilities could end up being bailed out by U.S. taxpayers because of federal orders to generators to continue selling electricity to the state, the chairman of the Senate Energy Committee said Wednesday.

"In the event California cannot repay generators for this power, the federal government is going to have to meet that obligation, because this was an order of the federal government," Sen. Frank Murkowski, R-Alaska, said at a hearing of the Senate Energy and Natural Resources Committee.

California remained at the highest level of alert Wednesday, the 16th straight day that power reserves have dipped to below 1.5 percent of total capacity, making rolling blackouts possible. "I just want to make the record clear that this administration has basically passed on to taxpayers -- the entire United States -- the contingent liability associated with billions of dollars in power that was ordered by this administration to give California time to work out its problems," Murkowski said.

The Bush administration extended former President Clinton's emergency supply orders through February 7 to give California state officials a chance to resolve the financial crisis of its two biggest utilities, Southern California Edison and Pacific Gas and Electric.

The senior Democrat on the committee, New Mexico Sen. Jeff Bingaman, said the Bush administration needs to find a solution "before the crisis worsens." But he said the only solution the president has proposed is to drill for oil in the Arctic National Wildlife Refuge.

Economist Larry Makovich told the committee that California's problems are rooted in laws that discourage the construction of new power plants, unlike other states that have successfully deregulated.

"Texas added 5,000 megawatts of new supply last year. And it's got another 8,000 coming forward this year. California is about 5,000 megawatts short," Makovich said. "Had they done what Texas did, there would be no shortage right now."

California's Legislature is currently debating a plan to rescue the utilities by issuing bonds to help the utilities pay off their debts in exchange for a stake in the companies.

Meanwhile, SoCal Edison came under fire Tuesday after an audit showed it transferred $4.8 billion to its corporate parent, Edison International, during the four years leading up to the state's electricity crisis. The amount would have covered much of the massive debt the utility has accrued since May.

"Basically they took the money and ran," Senate President Pro Tem John Burton, D-San Francisco, said late Monday night. "Had they not done that they would not be in the financial problem they are in. If ratepayers bail them out, ratepayers should get something in return, like power lines or something."

Harvey Rosenfield, spokesman for the Foundation for Taxpayer and Consumer Rights, said the report shows that SoCal Edison has been inflating its losses during the past six months and has $1 billion in cash on hand.

"Solving the energy crisis in California does not require bailing out Edison," Rosenfield said.

A written response to the audit from SoCal Edison stated that the funds were not profits but rather payments for quarterly shareholder dividends and for reimbursement to shareholders for their investments in power plants.

Another audit, released Tuesday, found that PG&E ignored months of warnings that California's deregulated electricity market was in trouble.

The Associated Press and Reuters contributed to this report.

-- pho (owennos@bigfoot.com), January 31, 2001

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