SACRAMENTO – California will no longer be held captive by energy suppliers charging high prices for power, Gov. Gray Davis said Wednesday as he officially put California into the electricity wholesale business.
Davis approved a bill creating the California Consumer Power and Conservation Financing Authority -- a new state agency that can issue up to $5 billion in revenue bonds to build, purchase, lease or operate power plants.
Authority-financed plants will provide cost-based electricity to California consumers, Davis said, which will stabilize the state's volatile energy market.
The power authority is modeled after one in New York, which has 10 power plants, 1,400 miles of transmission lines and produces about 25 percent of the state's power. Nebraska also has a power authority, which created a market in which residents pay 22 percent less than the national average, said Senate Leader John Burton, a San Francisco Democrat and the bill's author.
A higher-than-usual number of power plants under repair this year shows companies are manipulating the power market to drive up prices, Davis said, something the new authority fights by building more plants.
Having a public power authority will "supplement not supplant" private energy sources, Davis said.
"In a deregulated world, the only way you can guarantee reliable affordable power is to build it yourself if private companies won't do it," he said.
The bill allows the authority to seize power plants, but Burton said if the state does so, he would prefer it happen through the governor's emergency power, which is faster.
"Sooner or later the state has got to let these buccaneers know that we're not going to tolerate what they're doing to us," Burton said. "The only thing these exploiters understand is possibly a little counterterrorism."
Few Republicans in the Legislature supported the bill, saying the state shouldn't get further into the power business. They also warned that it could discourage private companies from building plants.
"It's just $5 billion more in bonds borne by ratepayers to do something the private sector would gladly do, if we would get out of the way," said Assemblyman Dave Cox, R-Fair Oaks.
The bill was sponsored by state treasurer Philip Angelides, who conceded that it won't save California from blackouts this summer but will help stabilize the energy markets as more generators are built.
With the authority, Angelides said, California will not be held hostage "by an unregulated private energy market run amok." The authority is the "beginning of the end for deregulation ... which has proven to be a disaster."
Angelides repeatedly blamed the crisis on out-of-state power generators.
"There is a tremendous drain on California because of generators' prices," he said. "And that drain is heading straight to the heart of Texas," which is opening its energy markets.
Severin Borenstein, director of University of California, Berkeley's energy institute, said better ways exist to solve the state's energy crisis, such as signing long-term contracts for power.
The problem, he said, didn't come from not enough public power plants but because "there are companies that have market power and there's a real shortage and we didn't hedge against that."
Private companies may not want to build plants in California if it looks like the state could be overbuilt and "there are pretty good reasons to believe that the government won't be the most efficient builder and operator of power facilities," Borenstein said.
Also Wednesday, several key lawmakers urged Davis to join with the governors of Washington and Oregon to set a limit on the price the states would pay for power this summer, creating a "buyers' cartel."
The states should set their own price ceiling on electricity in light of federal regulators' refusal to set region-wide caps, said Fred Keeley, D-Boulder Creek, the Assembly's point man on energy.
The states would refuse to pay, under any circumstances, more than a predetermined price that would give electricity generators a "reasonable" profit, under a resolution sponsored by the nine Democrats.
If generators refused to lower their prices, that would mean almost certain blackouts in California this summer, said Assemblyman Paul Koretz, D-West Hollywood, the measure's author.
But those will happen anyway, by all accounts, and the price cap would let the state better predict and manage the outages, he said.
The resolution proposes that caps be installed for two years, until enough power plants can be built to allow the market to function naturally.
The state has been buying power for the customers of three major utilities since mid-January. The utilities' credit was cut off after they amassed debts of more than $14 billion dollars due to high wholesale electricity prices that they were unable to pass on to customers.
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