POWER OUTAGES LOOM AS OFFICIALS TRY TO END CRISIS.

Byline: Bill Hillburg Washington Bureau

WASHINGTON - State and federal officials worked behind closed doors Wednesday to solve California's energy crisis even as U.S. Energy Secretary Bill Richardson refused to extend an emergency order ensuring that the state's power needs would be met.

Richardson's decision could result in brownouts or rolling blackouts if a deal isn't completed before the state runs out of energy. His announcement came as state and industry negotiators were meeting in Washington to work out details of a complicated bailout plan.

The plan - tentatively agreed to early Wednesday by Gov. Gray Davis and other officials, including Richardson, following a marathon energy summit - calls for the state government to possibly enter into long-term contracts with providers of electricity at what Davis called a ``very attractive'' fixed rate.

At a Wednesday press conference in Sacramento, Davis said he was ``working closely with utilities to find a workable solution'' and ruled out a consumer rate increase to ease the energy crisis.

Steve Maviglio, a Davis spokesman, said the governor has not selected a method for financing power purchases, but said it was unlikely that taxpayer-supported bonds would be used for the scheme.

Officials have suggested that a portion of the state's budget surplus be used for the effort.

Consumer activist Harvey Rosenfield, director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, was critical of the deal.

``This is the worst possible time to negotiate long-term contracts with the power suppliers who have us over a barrel, with a gun to our head,'' said Rosenfield. ``This could be a massive boondoggle for taxpayers and ratepayers.''

The bailout proposal also calls for electricity providers to negotiate extended payment plans with Southern California Edison Co. and Pacific Gas and Electric Corp., which have claimed they are on the brink of bankruptcy due to spiraling energy costs.

Treasury Secretary Lawrence Summers announced Wednesday that energy summit participants would return to Washington this weekend to finalize a deal. But Maviglio said details of the meeting were still in the planning stages.

Richardson defended his decision to end the emergency order by saying California had failed to achieve a 5 percent reduction in power consumption by Tuesday night.

``The state failed to enact conservation measures and we will not be extending the order when it expires,'' said Richardson, who ignored Davis' pleas for an extension.

A separate Energy Department order that caps wholesale electricity prices will remain in effect. It was enacted Dec. 15.

Davis had said his administration was working hard to achieve the required reduction.

A spokesman for Southern California Edison Co. declined to comment on Richardson's decision or its impact, and referred questions about the potential impact to the California Independent System Operator, which runs the state's power grid.

Patrick Dorinson, spokesman for the California ISO, said it is too early to assess the total impact of Richardson's action. But Dorinson added that ``it's going to be another tight day (today).''

The ISO declared a Stage Two emergency Wednesday afternoon, signifying very tight reserves of electricity from 3:30 p.m. to midnight, due in part to demand and power plants off-line.

The Diablo Canyon Nuclear Generating Station was reduced to about one-fifth its normal output because high seas indirectly threatened to clog intake valves that send cooling water to the Central Coast plant.

Richardson allowed the order to expire after having extended it once before on Friday. At that time, he had said California needed to achieve conservation measures due to the fact that the state's power needs were being met by suppliers from other states including several that were having their own energy problems.

Also Wednesday, officials of PG&E, Northern California's major electric utility, said their finances had deteriorated to the point where they could no longer buy natural gas to run their power plants.

Consumer activists have charged that PG&E and Edison, Southern California's major investor-owned utility, have ample resources to cover their own operating losses.

In a related development, Energy Department officials said Wednesday that they would fight a lawsuit brought by energy suppliers who claim the ongoing federal cap on electricity prices is an illegal restraint on their trade.

The suit was brought by the Pasadena-based Power Exchange, a nonprofit agency that operates a spot trading market for electricity in Alhambra.

The Energy Department's order capped wholesale prices at $150 per megawatt hour. The Power Exchange has set its own cap at $250 per megawatt hour.

The state's energy crisis results from a deregulation effort that was approved in 1996 and enacted on March 1, 1998. Davis, in his State of the State speech Monday, branded deregulation a ``dangerous failure'' and an ``energy nightmare'' and proposed a government takeover of California's electricity system.

Deregulation called for Edison, PG&E and other investor-owned utilities to get out of the power generating business, sell off their power plants and concentrate on delivering electricity to customers.

Power generation was turned over to new private suppliers and prices were to be determined in a free market, based on supply and demand.

Proponents claimed deregulation would result in lower prices for consumers. But last year a sharp increase in demand, coupled with higher prices for energy outside the state, began resulting in rising electricity costs and shortages that are now seen as major threats to the state's economy.

The power crisis has not had an impact on the city-owned Los Angeles Department of Water and Power and its 3.8 million customers. Municipal utilities were exempted from the 1996 deregulation law. In recent months, the DWP has been able to sell excess electricity production to meet statewide needs.

Also insulated from the crisis are customers of city-owned electric utilities in Burbank, Glendale, Pasadena, Vernon, Colton, Azusa, Anaheim, Riverside and Banning.

Los Angeles Mayor Richard Riordan sent a letter to Davis on Wednesday asking the state to guarantee payments for the electricity supplied by the Department of Water and Power to the power grid.

Riordan estimated that the city was owed $130 million of the $200 million in electricity it has provided over the past several weeks. Most of it is due from Southern California Edison and Pacific Gas and Electric, he said.

The mayor also proposed a way to get a new power plant on line - at the city's facility in Delta, Utah - if the state would sign a long-term contract with the city.

``One of the problems we have is that it takes seven years to build a new power plant in California,'' Riordan said. ``If the state would sign a long-term contract, we could get the financing to build a new facility in two years and generate enough power for 350,000 to 400,000 people.''

Staff Writer Rick Orlov contributed to this report.