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Copyright Reuters News Service, Fair Use for Education - Research Only Thursday April 5 11:31 PM ET California Governor Sets Summer Energy Crisis Plan By Michael Kahn

SACRAMENTO, Calif. (Reuters) - Gov. Gray Davis outlined his plan to solve California's energy crisis Thursday, calling for restructured consumer rate hikes and a statewide program of conservation to keep the lights on this summer.

Davis, under intense political pressure to take a more public role in managing the emergency, used a televised speech to slam federal regulators for leaving California at the mercy of out-of-state power generators he said were ``ripping off'' the nation's most populous state.

``But no matter how we got into this mess, you hired me to solve problems. And that's what I'm doing,'' Davis said.

Davis, who had vowed not to stick California consumers with the bill for the state's botched 1996 power deregulation scheme, said he was now convinced that consumer rate hikes were necessary -- although not at the average 40 percent rate that state utility regulators proposed last week.

He also called on California to achieve an overall 10 percent reduction in power consumption over the summer, and said he was backing moves to establish a state power authority to take the lead in building up California's own power generation capacity.

Crisis Atmosphere In Sacramento

Davis's speech marked the first time in almost a decade that a California governor has made an emergency live television address during prime time, reflecting a new sense of panic in Sacramento as summer's approach brings the threat of more rolling blackouts.

Those blackouts, which have hit on four separate occasions this year, have become the clearest symbol of a crisis many blame on a 1996 deregulation law which allowed wholesale prices to rise while capping consumer prices.

Surging demand, lack of new power plants and supply bottlenecks led to a tenfold rise in wholesale power rates over the past year, forcing the state's two main investor-owned utilities, PG&E Corp.'s Pacific Gas and Electric and Edison International's Southern California Edison facing near bankruptcy with debts closing on $14 billion.

In a sign of Wall Street worry over the utilities' finances, credit rating agency Standard & Poor's said on Thursday that Pacific Gas & Electric Co. and Southern California Edison may be unable to recover any time soon if they write off up to $6.8 billion in charges for electricity costs they cannot recoup.

Davis said his rate proposal would help resolve the situation, earmarking funds to begin paying down utility debt and bring them back from the brink of bankruptcy.

Davis' rate proposal, which needs approval from the California Public Utilities Commission, is aimed at hitting heavy power consumers hardest with rate hikes of up to 34 percent, while sparing more than half of Californians with relatively low energy consumption any increase at all.

The average increase for those with higher power bills would be about 26.5 percent, he said -- will all hikes coming on top of a 9 percent increase approved earlier this year.

``The more you use, the more you pay. The more you conserve, the more you save. Conservation is our best short-term weapon against blackouts and price-gouging,'' Davis said.

Davis Sets Conditions For Utilities

Davis said Thursday he still hoped for an agreement with the utilities to save them from financial ruin.

But he said the utilities would have to agree to three conditions to take advantage of the bail-out offer, including selling the transmission network, dropping legal efforts to raise consumer rates, and agreeing to sell the state ``low cost regulated power'' for 10 years.

In a step to encourage conservation, lawmakers Thursday passed bills which will devote a record $1.1 billion to encouraging conservation efforts through promoting energy efficient upgrades and loans for renewable energy.

Davis, who has seen his political star dim as the energy crisis continues unabated, was criticized as offering too little, too late Thursday by his Republican adversaries -- and even some of his Democratic allies gave his speech only a feeble thumbs up.

``It was a very nice, warm, fuzzy political speech, (but) it frankly did not offer any new solutions to the problem,'' said Dave Cox, the Republican leader in the state assembly.

The Assembly's Democratic Speaker Robert Hertzberg said he was committed to working with Davis to resolve the problem, and was pleased that the governor was now backing the notion of a public power authority.


-- Robert Riggs (, April 06, 2001

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