BUY PLANTS, NOT WIRES STATE, UTILITIES SHOULD PARTNER TO BOOST POWER SUPPLY.

Byline: Keith Richman and Pat Bates LOCAL VIEW

DO we really want to buy the electrical grid to bail out the utilities, as the governor has proposed, or is there a better plan?

Keep in mind that energy experts nationwide agree this electricity crisis is a fundamental imbalance of supply and demand. Simply, we don't have enough power generation available to meet the needs of California's families and businesses.

On any given day the investor-owned utilities face a shortfall of nearly one-third of their customers' power needs, and the state is now spending $40 million to $50 million a day to purchase that power on the open market. To date, more than $2 billion of our state surplus has gone to purchase power. That money could be much better spent on school facilities, roads, highways or environmental projects.

Besides California's looming state budget disaster, its two major utilities, Southern California Edison and Pacific Gas & Electric, are on the brink of bankruptcy because the public utilities commission forced them to buy high-priced electricity on the spot market and discouraged them from entering into less expensive long-term contracts. PG&E and Edison together have run up a staggering $13 billion tab buying electricity for their customers, a bill that remains to be paid.

The governor's plan to bail out the utilities by buying their electricity transmission grids fails key tests. Buying the grid does not generate any new electrons for the people of California. The grid annually requires hundreds of millions of dollars in maintenance and will need billions of dollars for upgrades.

Besides that, by making the electricity transmission system state property, the state and local governments will lose more than $100 million annually in property tax revenues.

The governor wants utility ratepayers to repay the revenue bonds used to purchase the grid through a ``dedicated rate component.'' In all likelihood this ``dedicated rate component'' will increase electricity rates for years to come with little or no real return on the state's investment.

But there is a better alternative than bailing out the utilities by buying their transmission systems.

The state, on behalf of the ratepayers, should partner with the utilities to build new power generation facilities. Under this sensible alternative, both PG&E and Edison would each build 500 megawatts of power generation annually for seven years. This construction program would produce an additional 7,000 megawatts of power for the people of California.

In exchange for the investment in the utilities, the state, again on behalf of the ratepayers, would receive warrants for a portion of the increase in utility stock values and part ownership in the new power generation facilities. The stock warrants and the power plant shares would be held in a trust for the benefits of ratepayers.

In a few years, when the utilities have returned to a sound financial footing and the new power generation facilities have been built, the state would sell its investment positions. The proceeds of those investments would be used to reduce electricity rates, promote alternative energy generation or fund demand buyback programs. All of these uses would benefit the ratepayers, the same people who financed the investments in the first place.

This joint venture investment plan is clearly better than buying the expensive, high-maintenance electricity grid. Not only does it provide a real return on investment for the ratepayers, but it would also bring badly needed power online for California - the experts' solution to our current energy crisis.