$10 BILLION GAMBLE LAWMAKERS PASS UTILITY AID PACKAGE.

Byline: Dana Bartholomew Staff Writer

Gov. Gray Davis signed legislation Thursday putting the state in the power business in a $10 billion gamble that electricity rates can be sharply lowered within 18 months or so.

The Democrat-backed measure lets taxpayers off the hook for the time being, committing customers of the state's two largest private utilities to pay whatever rates are necessary to pay off the bonds and the nearly $600 million in taxes that already have been spent to keep power flowing in the energy crisis.

Critical to the plan are conservation measures imposed by Davis on Thursday in an emergency executive order and efforts to quickly build enough new generating plants to provide for the state's energy needs.

Under the plan, which effectively ends the state's disastrous five-year experiment with deregulation, the state hopes to immediately obtain 60-day and longer contracts for power at half the 30 cents per kilowatt it now costs in the spot market and to lower the price further over time.

By taking the burden of buying the power and selling it directly to consumers off the utilities, the legislation provides a bailout to Edison and PG&E to start paying down their $12 billion in debt with the profit on the low-cost power they generate.

``This whole thing just gives me the willies,'' said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

``What are the taxpayers being put on the hook for? This is a knife fight, someone's gonna get cut. I fear for California homeowners.''

Assembly Speaker Bob Hertzberg, D-Van Nuys, a central figure in crafting the plan and convincing four Republicans to join Democrats in providing the two-thirds majority needed for passage, insisted the measure protects taxpayers.

``This bill we passed reimburses the taxpayers of California for money they advanced the ratepayers in the utility districts of Southern California Edison and PG&E,'' Hertzberg said in an interview.

``This sets up a mechanism to get the money back by ensuring all the financial risk is borne by the ratepayers in those service areas. The people who are obligated to pay this back are the ratepayers, not the taxpayers.''

The law specifies that all bonds sold must have the disclaimer: ``Neither the faith and credit nor the taxing power of the State of California is pledged to payment of the principal of or interest on this bond.''

It also says the state power authority to be set up must use early proceeds of the revenue bonds to repay the state general fund for money spent during the crisis to buy power.

That provision resolves an inequity in the governor's handling of the situation since residents of Los Angeles, Burbank, Glendale and other communities with their own municipal utilities have been subsidizing the power costs to customers of private utilities.

Five years ago, public utilities serving Los Angeles, Burbank and Glendale - with a combined population of 4.1 million - were mocked for opting out of energy deregulation.

Since then, California's two largest utilities claim to be $12.7 billion in the red as a result of energy purchases with high prices they haven't been allowed to pass on to their customers. Bad credit, short supplies and soaring wholesale energy costs have put their region, or 75 percent of the state, at risk of blackouts for weeks.

To keep the lights on, the state has spent an estimated $600 million - about $45 million a day - buying power at soaring wholesale prices. The new measure contains $500 million more for such purchases.

The key to Thursday's energy package is California's new role in brokering power for private utility customers. The state, using its good credit, will contract with energy suppliers to buy power at lower rates, then resell it to 9 million private utility customers.

Lawmakers assume that when power prices plunge over time as a result of nine new generating plants, ratepayers will pay off their debt to state taxpayers and bondholders.

``This is a gigantic leap forward for California,'' Gov. Gray Davis announced in a statement after signing the bill. ``This measure offers our best hope of avoiding electricity rate increases in future years.''

Opponents, however, see it differently.

``There's a chance that the bond won't be paid back ... then the general fund will have to absorb it,'' said state Sen. Joe Dunn, D-Garden Grove, the state's only Democrat to vote against the measure. ``I can tell you right now, if the general fund will be at risk for $10 billion, we cannot afford it - the state can go bankrupt.''

The prospect of rate increases for private utility customers rankled many Republican legislators who said the problem was the fault of government policy.

``There's the potential for the state to end up in the same state the utilities are: buying power at one price, and selling it at a lower price,'' said Assemblyman Keith Richman, R-Granada Hills, ahead of Thursday's vote.

Consumer groups are incensed that ratepayers, promised relief through deregulation, have in the past few years paid $20 billion more than the cost of power to whittle down bad utility debts and are being asked to pay $12 billion more to pay back debts incurred during the energy crisis.

A recent state audit of Southern California Edison and PG&E said the utilities channeled a combined $8.8 billion to their parent companies and shareholders since energy deregulation began five years ago.

``It's really less about the energy crisis,'' said Paul Herzog of the Foundation for Taxpayer and Consumer Rights in Santa Monica. ``The governor is cramming a rate increase down our throats.''

``It's not fair: A ratepayer in Los Angeles should not be part of a taxpayer bailout that doesn't serve their area.''

Consumers Union, which publishes Consumer Reports, agrees.

``We don't think consumers who never clamored for deregulation should have to pay,'' said Michael McCauley of Consumers Union in San Francisco.

``California residents who are served by public utilities who opted out of deregulation should not have to pay, because they never asked for any part of it.''

A HUM OF FRANTIC ACTIVITY

Here is a look at developments Thursday in California's energy crisis:

--Gov. Gray Davis signs a $10 billion measure that will let the state enter into long-term contracts to buy electricity and sell it to the customers of financially ailing Southern California Edison and Pacific Gas & Electric Co., both denied credit by power suppliers.

The new law lets the state Public Utilities Commission raise electricity rates to repay the state for its power purchases. To encourage conservation, residential customers who use 30 percent more energy than a baseline specified by regional climate and energy use would be punished with higher rates.

--California faces a 17th straight day in a Stage 3 power alert, with reserves threatening to fall below 1.5 percent.

--Davis issues an executive order that as of March 15 will require all California retailers, including shopping malls, stores, auto dealerships and restaurants, to substantially cut outdoor lighting during nonbusiness hours. Those who refuse could be hit with $1,000-a-day fines.

--The governor also announces a $404 million conservation program. It includes a media campaign, $75 million in incentives for consumers to upgrade to more energy-efficient appliances, $95 million for businesses to install energy-saving equipment and lighting, plus funding to cut consumption during peak periods and increase state government's energy efficiency.

--Consumer groups restate their calls for lawmakers to vote against any legislation that places the burden of utilities' debts on ratepayers.

``We didn't ask for deregulation, we aren't responsible for this situation, and we shouldn't have to pay for it,'' says Bill Powers, legislative director for Congress of California's Seniors.

--PG&E notifies the Securities and Exchange Commission that it cannot pay more than $1 billion owed for power bought on the open market and sold at lower, regulated prices.

--PG&E and Edison tell the PUC it's not sending the right signals to Wall Street. The utilities ask the commission to stay an order letting PG&E use money customers owe it as collateral for future gas purchases from suppliers. Instead, PG&E says it wants to stick to the power-buying bill Davis signed; the utility says the law would negate the need for the collateral by allowing it to pass high energy costs on to consumers, and that would likely boost its and Edison's credit ratings.

--A division of Houston-based Enron Corp. says it will stop providing power directly to large California industrial customers, such as Cisco Systems, and switch them to PG&E. Enron says it won't raise their rates.

The supplier has long-term contracts with several dozen customers to provide energy at low rates. To fulfill those contracts, Enron says, it was forced to buy energy on the wholesale market at skyrocketing prices.

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