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California Becoming One Giant Electric Utility

After being criticized for months of inaction in confronting California's energy crisis, Gov. Gray Davis and his political allies have put that state on the road to creating a mammoth state-owned electric utility, answerable largely to the governor.

Moreover, though designed to solve a short-term emergency, the governor's policies are loading consumers with obligations that could affect the state's economy for 15 to 20 years.

What is emerging is a power colossus that operates largely beyond the reach of regulators or the public.

Since ordering the state Department of Water Resources in January to start buying power in place of California's cash-strapped utilities, the state has purchased or committed to purchase $45 billion to $50 billion worth of electricity -- with some contracts running as long as 20 years.

The governor has in effect seized control of the state's electricity-grid operator, the California Independent System Operator -- which was supposed to manage the grid without favoring any one participant.

Davis is also pushing to have the state buy huge chunks of the transmission system that are run by financially beleaguered utilities. Legislators openly wonder whether utility-rescue efforts are worth the billions of dollars they would require. By 2003, for instance, long-term contracts will cover 90 percent of the state's projected buying needs.

An economic forecast has warned that continued heavy state involvement and spending in the electricity business could produce enough of a drag on the California economy to reduce state output by $90 billion by 2005 and lead to higher unemployment.

Source: Rebecca Smith and John R. Emshwiller, "Hurt by Deregulation of Power, California Gives Itself Lead Role," Wall Street Journal, July 17, 2001.

-- Martin Thompson (, July 17, 2001

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