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Solution Eludes Power Players by H. Josef Hebert, Associated Press The Oregonian, January 10, 2001

State and federal officials, utilities representatives and power producers and brokers
hold a meeting to try to ease California's electricity crisis

WASHINGTON -- The key players in California's power crisis agreed Tuesday to try to bring stability to the state's electricity system, but seven hours of discussions produced no solutions.

"Progress was made. All sides gave a bit," Energy Secretary Bill Richardson told reporters after the talks broke up shortly after midnight.

California Gov. Gray Davis also expressed optimism. "We can see light at the end of the tunnel," he said.

High-level administration officials and all the key figures in the California electricity wars met behind closed doors for seven hours to try to fashion a framework for resolving the problems facing the state's electricity supply system.

The parties agreed to further technical meetings today and to have all the principals meet again this weekend -- a sign that some tentative agreements were fashioned during the marathon discussions at the Treasury Department.

"The participants agreed on the need for cooperation to maintain stability and avoid bankruptcy of California utilities," a statement issued by the participants said.

Davis, who has accused electricity wholesalers of price gouging, said that progress was made on developing long-term contracts to hold prices down, but he gave no further details.

The private meeting brought together state officials, regulators and legislative leaders; the state's three largest electric utilities; nine of the main power producers and brokers; and the chairman of the Federal Energy Regulatory Commission, which has refused to impose wholesale price controls sought by Davis.

In addition to Richardson, also at the meeting were Treasury Secretary Lawrence Summers and Gene Sperling, the president's top economic adviser.

Before the session began, Sperling said the administration hoped to play "an honest broker role" and for the first time bring the parties together to possibly develop a framework for resolving California's energy problems.

"We have very little direct authority over any of the parties," Sperling told The Associated Press.

Crisis threatens economy
Federal options appeared to be few, and one key Republican senator already has warned against a bailout for the state, whose five-year experiment with electricity deregulation was described this week by Davis as a "dangerous and colossal failure."

The potential economic fallout from California's power problems became more apparent Tuesday when Intel, the world's largest manufacturer of computer chips, announced it would no longer expand its plants or build new ones in the state until the electricity problems -- including sporadic threats of rolling blackouts and soaring prices -- are resolved.

"Unless this energy issue is addressed . . . it won't be just an issue of whether employers expand their operations here. It will be an issue of whether they continue to build their products here," warned Carl Guardino, president of the Silicon Valley Manufacturing Association, representing 190 California technology companies.

The session was widely viewed as an attempt to calm concerns on Wall Street and in the banking community about the prospects of two of California's utilities facing bankruptcy because of cash shortages.

Pacific Gas and Electric and Southern California Edison, which together serve about 25 million people, have teetered near insolvency, accumulating more than $9 billion in losses since June. The utilities have seen wholesale prices soar fivefold, but have not been able to pass on the increases to retail customers because of state restrictions.

Too little, too late
Last week, the state public utility commission agreed to a 7 percent to 15 percent rate increase, but the utilities said that was not nearly enough. There was growing concern that power suppliers would no longer sell to the utilities because of fear of not getting paid, one administration official said.

The utilities' stock continued to drop in trading Tuesday -- shares of PG&E sank from $14 to $13.18 and SoCal Edison's parent company, Edison International, went from $12 to $11 -- as Wall Street confidence in the two companies wavered.

Top executives of several generating companies, including Enron, Dynegy, and Duke Power, participated in the closed-door session.

Davis and the utilities have been frustrated because federal regulators have declined to intervene and regulate wholesale prices for electricity and natural gas flowing into California.

The governor "would like federal regulators to step up to the plate and set price caps," said Steve Maviglio, a spokesman for Davis.