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Municipal utilities lambaste Davis threat to seize power
David Lazarus, Chronicle Staff Writer Friday, June 1, 2001 ,2001 San Francisco Chronicle URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/01/MN17670.DTL California municipal utilities reacted with shock and anger yesterday to Gov. Gray Davis' threat to seize their excess power if they did not slash prices to below-market rates. "I feel totally betrayed," said George Fraser, general manager of the Northern California Power Agency, an association of 14 municipal utilities. "It's clear to me that the governor doesn't understand the power business." This new dimension to the state's energy woes came as authorities issued their first one-hour warning of imminent blackouts in the Bay Area, only to cancel the warning an hour later when additional power supplies were found. Davis told The Chronicle in an interview Wednesday that some city-owned municipal utilities had charged even higher electricity prices than the out-of- state generators he has accused of gouging California consumers. He said he was prepared to use his executive authority "to get that power one way or another" if the utilities did not lower their prices. The state so far has spent more than $8 billion buying electricity on behalf of cash- strapped Pacific Gas and Electric Co. and Southern California Edison. "What the governor said makes no sense whatsoever," said Jerry Jordan, executive director of the California Municipal Utilities Association. "He was definitely off-base." Jordan said most municipal utilities already provided all surplus power to California's electricity market. However, he said, the municipals buy power at market rates to meet their own shortfalls, and thus have a responsibility to their customers -- local city residents -- to sell any excess supplies at the same sky-high price levels. "Our utilities are going to do what they can to help the state of California," Jordan said. "But they aren't going to do that at the expense of customers." Davis' threat followed a meeting last week with the heads of about a dozen municipal utilities. Participants said the tone of the discussion was generally cordial, and it was understood the governor's office would work up a plan for future electricity purchases. Davis' threat came out of the blue, they said. "We're willing to sell our excess power," said John Roukema, assistant director of Silicon Valley Power in Santa Clara. "But we have to deal with the same market conditions that the governor does." Davis doesn't see it that way. He believes that many municipal utilities are exploiting California's power shortage in the same way that out-of-state generators are walking off with billions of dollars in windfall profits. The governor's top energy adviser, S. David Freeman, said in an interview yesterday that Davis' threat to seize the municipals' power was intended as a reminder that the state expected prompt action on the issue. "We want to be sure that the municipals are not just talking the talk but doing what they say," Freeman said. He said municipal utilities should be selling surplus power at the same level it cost to generate electricity, plus a reasonable markup of about 15 percent. Freeman finds himself in a somewhat awkward position on the matter. Before signing on with the Davis administration, he was head of the Los Angeles Department of Water and Power, by far the state's largest municipal utility. The Los Angeles department has been accused by both federal and state officials of charging some of the highest prices of all for electricity. Earlier this year, it was asking as much as $1,400 per megawatt hour for its output. Frank Salas, the department's chief operating officer, said such prices were necessitated by high production expenses. "We were just recovering our costs," he said. For his part, Freeman insisted that no such pricing had occurred on his watch. "There was tremendous pressure on me to charge more," he said of urgings from Los Angeles Mayor Richard Riordan and other local officials for higher profits, demands that Freeman said he had resisted. "That pressure may have increased now that I'm gone," he said. "I don't know what they're doing now." The Department of Water and Power's Salas countered that Freeman should know exactly what his former colleagues were doing. "We have the same pricing structure now that we had when he was boss," he said. Fraser at the Northern California Power Agency said it was strange that Davis would be so aggressive in his dealings with the municipals, which provide only about 15 percent of the state's power needs. "He's kicking the little guy," he said. "He's picking on us because he can." E-mail David Lazarus at dlazarus@sfchronicle.com.
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