Bill to Rescue Utilities With Rate Hikes Stalls in Assembly

SACRAMENTO —  Efforts to resolve the state’s power crisis hit a serious snag late Wednesday as the state Assembly appeared unable to pass a bill that would have authorized up to $10 billion in bonds to purchase power and raised electric rates for millions of residents.

The bill, which required a two-thirds vote, fell just short, and legislative leaders scrambled around midnight to see if they could convince three Republicans to change their minds.

The Senate had passed the bill earlier Wednesday, but after a debate that was at times bitterly partisan, the Assembly vote came in at 51-27--short of the 54 votes needed for passage. Assembly Republican leader Bill Campbell (R-Villa Park) was able to find only one member of his caucus to join him in supporting the bill, which was approved by all but one of the Assembly’s 50 Democrats.

“I am speaking for myself tonight, not as the leader of my caucus, because I am not in alignment with my caucus,” a dejected Campbell said. The apparent failure of the measure left legislative leaders uncertain of their next step as they try to stave off bankruptcy for the state’s two largest electric utilities and reassure financial markets that California will be able to resolve its power crisis.

Despite the stakes, however, the Assembly’s Republican minority insisted that the proposed cure was worse than the disease.

“This is a bailout and a massive rate increase for the people of California,” said Assemblyman Tony Strickland (R-Moorpark), one of the leading opponents of the measure.

Gov. Gray Davis--who had repeatedly vowed to avoid using rate hikes to resolve the energy mess--defended the bill as “essential” and said Wednesday afternoon that he would sign it if it passed.

The measure would “allow us to enter into long-term contracts for electricity which will greatly reduce the cost of power in the future,” Davis said in a letter urging lawmakers to adopt the bill.

In the absence of such contracts, the state is spending about $45 million a day to buy power to keep the lights on.

“Like it or not, we are in the power business,” Assembly Speaker Bob Hertzberg (D-Sherman Oaks) said as his chamber began debating the bill late Wednesday night.

The long-term contracts that officials hope will lower the state’s power costs are now under negotiation, with S. David Freeman, the head of Los Angeles’ Department of Water and Power, representing the state in talks with power suppliers.

The bonds envisioned by the failed bill would have been paid off by electricity customers.

To guarantee the bonds--thus making them attractive on the market--the bill would have authorized the state Public Utilities Commission to raise rates. Rates for residential customers, however, could go up only if they exceed their “baseline,” or minimum power allowance, by more than 30%.

Southern California Edison calculates that about half of its 4.3 million customers would have faced a rate increase under the plan unless they reduced energy consumption. That provision was roundly attacked by some consumer advocates, who called it a bailout of the utilities.

Still pending are proposals to rescue utilities from the huge debts they have accumulated in the last several months. Lawmakers are considering a measure under which the state would issue additional bonds to help the utilities pay off their debts and in return have the public receive a stake--through a type of stock option--in the companies. The utilities have balked at that idea and are pursuing litigation to force further rate hikes to pay off the debts.

Wednesday’s debate was marked by rising criticism of Davis from legislators, who have accused him of responding sluggishly to the deepening energy crisis.

Before Davis’ letter, lawmakers had griped that they didn’t know where the governor stood on the bill: “I will not vote for it unless ownership is declared by the governor,” said Sen. Don Perata (D-Alameda). “Either he’s for it or he’s not.”

Failure of the legislation came as California marked its 16th straight day in a Stage 3 power emergency, with electricity reserves perilously low and grid managers hunting frantically for supplies.

During Senate debate, legislators characterized the vote as a painful one that they hoped they would not later regret. But a majority agreed that the alternative--doing nothing--would expose Californians to more blackouts and force the state to keep buying power at exorbitant prices on the spot market.

“Is it a whopper? Is it absolutely wonderful? No,” Senate leader John Burton (D-San Francisco) said before his house approved the measure with the minimum 27 yes votes required. “Will it help us go forward until we move on some of these problems? Yes.”

Sen. Debra Bowen (D-Marina del Rey) called the bill “a measure that I undoubtedly hate as much as anyone on this floor.

“But it is far less odious than the alternative, which is to . . . allow the state to continue--with no end in sight--spending $40 [million] to $45 million a day to buy electricity on the spot market.”

Republicans gave a harsher verdict. “This is a rate increase, make no bones about it,” said Strickland. “The consensus in our caucus is, no way.”

And Assemblywoman Charlene Zettel (R-Poway) said the debate on the bill resembled what she had heard about the Legislature’s action on energy deregulation four years ago, before she was elected.

“It seems to me that back then we made a lot of assumptions, and we were wrong,” Zettel said. “It seems to me we’re making a lot of assumptions here.”

Also Wednesday:

* Power officials said conservation efforts have succeeded in reducing demand by about 1,000 megawatts during peak hours, enough to keep the lights burning in 1 million homes and sufficient to avoid rolling blackouts for now, said Stephanie McCorckle, a spokeswoman for the California Independent System Operator, which manages the state power grid.

* Southern California Edison reiterated that it will not make electricity and debt payments that are due this week. An independent audit released Monday pegged the amount due at nearly $800 million. The company will not make the payments because it is trying to hold on to its meager store of cash, Senior Vice President Tom Higgins said. Pacific Gas & Electric has said it will default on about $1 billion in electricity and debt payments this week.

Clarence Brown, a spokesman for Edison, denounced as “outrageous” the claims by consumer activists that the utility and its parent company, Edison International, have profited from California’s ill-starred deregulation plan.

* An air quality hearing board told Glendale officials it would schedule a public hearing on the city’s request to exceed current pollution limits at its municipal power plant. Approval would allow the municipal utility to generate additional power.

Separately, air quality regulators approved a request by Pasadena to operate power turbines for as long as 1,300 hours a year, as long as they have or purchase pollution credits. Without the waiver, the city could run the turbines for no more than 200 hours annually.

The bill passed by the Senate on Wednesday, AB 1X by Assemblyman Fred Keeley (D-Boulder Creek), was the first substantial action taken by the Legislature to resolve the crisis that has catapulted California’s energy woes onto the national agenda and spread fears of recession.

The measure’s most controversial provision is the approval of rate increases, which has sparked both ideological and sectional disputes. Sen. Jim Battin (R-La Quinta), for example, argued that his desert constituents would bear “a disproportionate burden” of the increase because high temperatures force them to routinely exceed their baseline power allowance--although their allowance is larger than that given residents in cooler areas.

“It’s not fair and it’s not right,” argued Battin, who, like all but three Republican colleagues, voted against the bill or abstained.

Others complained that the baseline system treats single-person households and those with five people the same way, meaning that larger families are more likely to exceed the minimum and, thus, face rate hikes.

But supporters called the bill a compromise that would at least provide some protection for residential consumers. And they noted that low-income residents would continue to enjoy a 15% discount on their monthly bills. In Southern California, 500,000 of Edison’s customers enjoy such a discount.

“Under the circumstances, it’s a decent bill,” said Mike Florio, a senior attorney at the Utility Reform Network. “It’s what had to be done. It’s Step 1 in a long, long process.”

One indication of how long that process will be is that the bonds contemplated by the measure wouldnot even be floated for months. In the meantime, the state would have to continue to pay for power out of its general fund at an undetermined cost. The measure would have appropriated $496 million for that purpose, but further allocations might have been needed, depending on the cost of power.

The legislative debates on the bill were marked by sharp criticism of Davis.

“No more talking about leadership,” said Campbell, the Assembly Republican leader. “Put up or shut up. . . . Time is running out.”

On the Democratic side, Perata began circulating a “manifesto” demanding that Davis take swift actions, including establishment of a state power authority that would take ownership of power plants “in or out of the state.”

The proposal, which Perata plans to introduce today, is a nonbinding resolution that would express the sentiments of the Senate. Calling the energy crisis a “condition of extreme peril to the safety” of Californians, it asks Davis to prepare a plan to protect residential and small business consumers against “unjust and unreasonable” rates and immediately convene a meeting of utility creditors to review bankruptcy options facing Edison and PG&E.;

The governor’s office had no immediate comment on the criticism of his performance. Today, however, Davis plans to unveil a publicity campaign to encourage consumers to conserve energy. Using radio and television ads centered on the theme “flex your power,” the campaign will urge residents to shift their energy use to periods of the day when demand is low.

For their part, GOP lawmakers from the Senate and the Assembly unveiled a package of 15 proposals aimed at bolstering California energy supplies.

Sen. Tom McClintock, the Thousand Oaks Republican who has been working on supply-related issues for his party, accused the state of actively discouraging the building of new generators over the last 25 years, resulting in today’s crisis.

“You either begin a crash program of energy development in this state to address the supply side or you do what Gray Davis did, which is basically to say if you bring a generator into the state of California we’ll seize your assets and throw you all in jail,” McClintock said. “We think that is the wrong approach.”

As the Senate prepared to approve the long-term buying bill, a protest outside the governor’s office led to the arrest of two demonstrators accused of obstructing the doorway. More than a dozen consumer activists yelled “shame, shame, shame” and waved dollar bills as they protested what they called a taxpayer-financed bailout of utilities.

“These are multibillion-dollar companies that have the ability to bail themselves out without our help,” said Medea Benjamin, a former Green Party U.S. Senate candidate and one of the protesters arrested.

*

Times staff writers Andrew Blankstein, Mitchell Landsberg and Nancy Rivera Brooks in Los Angeles and Miguel Bustillo, Julie Tamaki, Rone Tempest and Nancy Vogel in Sacramento contributed to this story.