Davis cuts red tape - Plan speeds plants, vows more energy by summer

Davis cuts red tape
Plan speeds plants, vows more energy by summer

By Ed Mendel
STAFF WRITER

February 9, 2001

SACRAMENTO -- Gov. Gray Davis launched a crash program yesterday aimed at avoiding blackouts in California this summer, mainly by adding dozens of small power plants and delaying shutdowns of generators for air-quality improvements.

While urging Californians to conserve energy, the governor issued six executive orders and set an ambitious goal of getting an additional 5,000 megawatts for the summer, enough power for about 5 million homes.

"These are megawatts produced in California that will stay in California," Davis said. "They will help keep the lights on during the peak periods this summer, and they will reduce our dependence on out-of-state generation."

The governor said the state Energy Commission, in a sharp reversal, fears that a 5,000-megawatt shortfall could bring shortages and rolling blackouts this summer. Last November, the commission predicted adequate power for the summer if the weather cooperated.

A few hours after Davis' announcements, a federal judge in Sacramento extended a court order that requires three major electricity suppliers to continue selling to California. The order is in effect until at least next Friday.

Davis also appointed what he called a "construction czar," Larry Hamlin of Southern California Edison, to speed up the building of new power plants. He appointed a "permitting czar," Environmental Secretary Winston Hickox, to speed up the approval of new plants.

"We will demonstrate that California can cut red tape, build needed energy supply, and maintain our respect for the environment," Davis said. "All three things can be done, all three things will be done."

Beyond this summer, the governor also set a goal of an additional 5,000 megawatts for next summer and a total of 20,000 megawatts by 2004 -- enough to increase the existing generating capacity of the state by nearly 40 percent.

Davis signed legislation in September that attempted to speed up the construction of power plants by providing a four-month approval process for small "peaker" power plants and a six-month process for full-size plants.

But there have only been two applications. Peaker plants are 50 megawatts or less and, as the name implies, run only during periods of peak load.

The executive orders that Davis issued yesterday, fashioned with advice from Bechtel Corp. and others with construction experience, shortens the permit process to four months for a full-size plant and to just 21 days for peakers, if the federal government agrees.

Firms that bring a new plant on line by July are eligible for an "acceleration bonus" from a $30 million fund.

The governor also called for legislation to encourage more renewable generation from wind, solar, biomass and geothermal plants by providing $100 million and a 50 percent tax credit.

One order signed by Davis allows power plants to delay scheduled shutdowns for "retrofitting" with new equipment that reduces air pollution. The governor created a new State Emissions Offset Bank that will allow the power plants to keep operating by trading air-pollution credits.

"On a two-year basis, absolutely, the air will be cleaner," Hickox predicted. He said the operation of plants this summer will be offset by speeding up the retrofitting of plants not scheduled for a year or two.

Davis announced his plan at a 545-megawatt power plant in Yuba City, north of Sacramento, that Calpine Corp. is scheduled to open in July. It will be the first major power plant built in California in more than a decade.

California has been importing about 20 percent of its power. Two more major plants are scheduled to go on line later in the summer, providing a total of more than 1,300 megawatts.

Hickox said that the Independent System Operator, which manages most of the state power grid, has been working with the military, oil firms, utilities and others to get 15 to 20 small peakers on line this summer that would provide 1,100 megawatts.

The governor's orders are expected to produce roughly 1,000 megawatts. But Hickox said the state is still looking for an additional 1,000 to 1,500 megawatts to meet the goal of 5,000 megawatts.

"We are telling people who have made proposals, 'Come see us,' " said Hickox. "We are here to talk and do business."

Legislators from both parties and both houses have made a number of proposals for speeding up power-plant construction. Davis is trying to ease the electricity crisis through more generation and conservation, while stabilizing rates through long-term contracts.

State Treasurer Phil Angelides said the first part of a $10 billion bond authorized by the Legislature to buy power for customers of the state's three investor-owned utilities through long-term contracts may not be issued until May.

Davis and legislative leaders met yesterday with the top executives of Pacific Gas and Electric and Southern California Edison to begin negotiations on a plan to begin paying off their debt. PG&E Chairman Bob Glynn had no comment after the meeting.

PG&E and Edison are nearly bankrupt. They owe more than $12 billion as a result of the state deregulation law that left them unable to pass along the soaring wholesale price of power to their customers. San Diego Gas & Electric has rolled up a debt of more than $450 million, but remains in sound financial shape because the state guaranteed last summer that it would be repaid.

The Public Utilities Commission yesterday allowed SDG&E to issue $800 million in bonds so it could maintain its cash flow during the energy crisis. But the move did not please SDG&E because the PUC specified that the bonds could not be secured by the utility's assets.

SDG&E officials worry that they will not find financiers willing to buy unsecured utility bonds in the California marketplace, because PG&E and Edison have been defaulting on their debts.

"Our position is fundamentally different than the other two utilities, but we've been subjected to a kind of ZIP code effect going on, where some people are just avoiding California utilities in general," said SDG&E spokesman Ed Van Herick.

In other action, the Public Utilities Commission chose to wait another week before deciding if it should investigate Edison International, PG&E Corp. and Sempra Energy, SDG&E's parent firm, to see if they complied with rules allowing them to diversify into unregulated businesses.

In the Legislature, Republicans took a hard line in the utility rescue debate, saying that the parent companies of the two major investor-owned utilities ought to come up with more cash before the state contributes.

"Republicans are not going to support a bailout proposal where the burden is carried by the ratepayers and the taxpayers," said state Sen. Bill Morrow, R-Oceanside.

In federal court, Judge Frank Damrell Jr. ordered Reliant Energy Services Inc., AES Pacific Inc. and Dynegy Power Corp. to sell electricity to California despite their worry that the two cash-strapped utilities won't pay for it.

Damrell's extension of a temporary restraining order he issued Tuesday ensures that the three key suppliers will not pull a significant amount of electricity off the state's power grid.

"The state of California is confronting an energy crisis of catastrophic proportions," the judge wrote. The order is in effect at least until a hearing next Friday.

The ISO sought the order, warning that the electricity's removal would disrupt the region's power supply so severely that outages would spread beyond California. The ISO estimated the total potential loss at 4,000 megawatts, enough for 4 million homes.

ISO officials said about 3,000 megawatts provided by Reliant are affected by the order. The company said the amount is actually less than a fourth of that because most of its power to California is already committed under long-term contracts.

Staff writers Bill Ainsworth and Dean Calbreath and the Associated Press contributed to this report.