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Power Crisis Raising Budget Concerns

$2.5 Billion Of Surplus Already Gone

SACRAMENTO, 4:43 p.m. EST March 9, 2001 -- With California spending $45 million a day just to keep its lights on in the midst of an unrelenting energy crisis, legislative leaders are beginning to worry about breaking their budget, especially if people don't conserve this summer. The state has allocated nearly half of its estimated $6.6 billion general fund surplus for short-term power purchases since January and has spent about $2.5 billion of that money so far, state Finance Department spokesman Sandy Harrison said Thursday. At the rate things are going, said Senate leader John Burton, D-San Francisco, "Anybody who wanted anything out of this budget is going to have to wait another year or so."

Meanwhile, state Treasurer Philip Angelides is still making plans to issue $10 billion worth of revenue bonds in May that would be used in part to fund long-term contracts providing the state with a cheaper, more stable supply of power. That money could be enough to give the state sufficient energy through July 2002 if power prices and regulatory decisions fall the state's way, Angelides said.

But the long-term power contracts announced by Gov. Gray Davis earlier this week won't kick in quickly enough to help much this summer, said Assemblyman Fred Keeley, D-Boulder Creek and the Assembly's chief energy negotiator.

That means that the state's power and cash supplies will be endangered without "very, very aggressive" energy conservation, Keeley said.

Burton agreed.

"What everybody has told me is this summer is going to be murder, because we don't have enough," he told the Assembly's Energy Costs and Availability Committee on Thursday.

Davis spokesman Steve Maviglio acknowledged that the power supply will be tight, but said that the governor is optimistic that California will avoid major problems.

He also said that a state Public Utilities Commission's decision Wednesday ruling that California may recover its power costs from ratepayers further protects the budget from long-term harm.

The state was forced to jump into the energy-buying business after wholesale power suppliers shut off credit to its two largest utilities, Southern California Edison and Pacific Gas and Electric.

The utilities said that they have gone nearly $14 billion in debt and are unable to pay their bills. They blame a 1996 state deregulation law that barred them from raising rates to recoup costs when energy prices suddenly shot up last year in a tight market.

Those market shortages have been blamed on a number of factors, including low hydroelectric power production in the Pacific Northwest, heavy demand and a number of power-generating plants being taken out of service for maintenance and repairs.

After weeks of nearly continuous energy alerts, the state's immediate power crunch has waned a bit in recent days. The California Independent System Operator, which controls the state's power grid, did not issue any power shortage alerts Thursday or Friday.

Harrison and Angelides said that the state's budget surplus is large enough to buy power until a short-term loan can be arranged later this month and the long-term bonds are sold in the spring.

But others were skeptical that the state budget wouldn't eventually suffer.

"There's no free lunch here. All this money has to be paid back," said James Fisfis, a spokesman for Assembly Minority Leader Bill Campbell, R-Villa Park. "We're certainly concerned, and certainly think the public has a right to be concerned," he added.

Assembly Budget Committee Vice Chairman George Runner, R-Lancaster, also expressed concerns that the state has pulled $332 million from flood control and parks projects to buy power and reward developers who speed up power plant construction.

He urged that the money be repaid immediately from the budget surplus instead of waiting until bonds are issued.

Douglas Heller of the Foundation for Taxpayer and Consumer Rights complained that Davis' efforts to stabilize electric rates with long-term contracts and long-term debt will lock in higher electric rates for consumers for a decade or more.

"We've lost a lot of money that should be going to schools, that should be going to build roads," he said. "Some of that money is going to be replenished, but it's going to be replenished by ratepayers. It's coming out of a different pocket, but it's the same pair of pants."

-- Martin Thompson (, March 09, 2001

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