FEDS STEP IN TO HELP KEEP STATE LIGHTS ON.

Byline: Joseph Giordono Staff Writer

California narrowly averted rolling blackouts Wednesday after federal officials ordered power generators to cut prices for local utilities, which warned they are in peril of bankruptcy.

Before U.S. Energy Secretary Bill Richardson intervened Wednesday, producers had demanded utilities pay cash for power. The Los Angeles Department of Water and Power - which is not affected by the shortage - has offered to sell it on credit.

State officials said Richardson's order likely will hold off power interruptions for suburban areas outside Los Angeles through the week and free up more electricity from Northwest generators. A Stage Two emergency was called Wednesday, the 10th straight day of statewide power shortages.

``Our objective is to keep the lights on in California through this emergency situation,'' Richardson told The Associated Press.

Southern California Edison officials warned they cannot continue to pay increased costs for electricity, as demand rises, production declines and consumer rates are frozen.

``We are saying that we have been financing the purchase of electricity for our customers, and that has got to come to an end,'' said Steve Hansen, a SoCal Edison spokesman.

Under the 1996 law that deregulated California's utility industry, consumer rates have been frozen until 2002. Hansen said SoCal Edison has unsuccessfully appealed that rate freeze to the Public Utilities Commission.

Edison International Chairman John E. Bryson issued a statement Wednesday calling for an end to what he called California's failed deregulation policy.

``In the current crisis, we will soon be compelled to take drastic measures to preserve our ability to serve customers - actions that could include rationing electricity,'' he said. ``Edison has had to borrow huge sums of money on the commercial markets. This situation is not sustainable.''

According to Bryson, the utility has been forced to overpay some $3.5 billion for power since May.

Gov. Gray Davis and Sen. Diane Feinstein, D-Calif., issued a joint statement urging the federal government to impose an immediate wholesale cap on electricity prices.

Last week, the Federal Energy Regulatory Commission lifted price caps in California.

``The price of power has risen astronomically on the spot market, and may very well bankrupt two of California's major utilities,'' according to Davis and Feinstein.

SoCal Edison reports that before deregulation forced it to sell its generating plants, it sold energy at $31 per megawatt/hour.

Tuesday's price on the open market was over $1,000 per megawatt/hour, the utility said.

Before Richardson stepped in Wednesday, officials from the California Independent Systems Operator said rolling blackouts were inevitable once energy usage peaked in the early evening.

``The response of the federal agencies has been very gratifying and we now believe that we have sufficient energy imports so that resources will be available through the end of the week,'' said Kellan Flucksiger, the ISO's chief operating officer.

The emergency order from Richardson prompted about a dozen power generators to back down from their refusal to sell energy to California utilities unless they were paid in cash.

The Los Angeles Department of Water and Power, which has not yet been deregulated, said it was supplying its surplus power to SoCal Edison on credit.

``Some of the other companies had decided not to extend credit, but we are selling our power just as we always have,'' said DWP spokeswoman Darlene Battle.

The DWP said it had up to 1,000 surplus megawatts to sell, and would do so only if the energy stayed in California. During last week's first-ever Stage Three emergency, the DWP provided the California ISO with more than 1,500 megawatts, Battle said.

Blackouts were averted last week when ISO officials shut off two water pumping facilities in Northern California.

A Stage Two alert was called in the early afternoon Wednesday, but customers that receive a reduced rate to cut their utility use were not told to power down, said SoCal Edison spokeswoman Cathy Sedlik.

If a Stage Three alert were called, Sedlik said, customers could be blacked out for about an hour on a rotating basis.

``It's broken out into groups of customers,'' she said. ``An entire city would not be blacked out.''

Officials from SoCal Edison said their plan calls only for giving an advance warning to the Los Angeles County Sheriff's Department.

SoCal Edison serves more than 4.3 million customers in Southern California.

The crisis has hit the region's companies hard, causing some of the Inland Empire's largest energy consumers to shut down several days a week, costing them thousands of dollars.

However, the cost of lost production is beginning to make companies wonder whether the lower rates are worthwhile.

Rancho Cucamonga-based Tamco Steel continues to shut down its operations day by day as needed during Stage Two alerts, said President Jack Stutz.

``When we don't have electricity, our operation is shut down,'' Stutz said. ``It's a very devastating situation.''

Also based in Rancho Cucamonga, Mission Foods is ready to shut down its operations if needed, said plant engineer Mike Vieau. Four times last week, Edison asked Mission to cut power, he said.

Staff Writers Joe Florkowski and Dave Melendi contributed to this story.