California Legislature Approves Power Bill

California has taken a step in the right direction. The state legislature passed a bill allowing the state to buy power under long-term contracts and resell it to near-bankrupt utilities Pacific Gas & Electric and Southern California Edison.

California Gov. Gray Davis signed the bill shortly after it left the Assembly. The bill sets aside $500 million for the state Department of Water Resources to buy power and sell it to the public, while officials work toward signing the long-term power contracts.

The governor hopes the contracts will be signed this week, assuring prices much lower than in the skyrocketing spot power market.

The bill should allow power to keep flowing into the state, now that power producers no longer want to do business with Pacific Gas & Electric and Southern California Edison. The power producers would prefer to deal with the state, which has a strong credit rating.

In addition, the legislation allows the water department to issue as much as $10 billion in bonds to finance power purchases, and permits the California Public Utilities Commission to raise rates to cover the department's costs.

According to analysts, the Pacific Gas & Electric and Southern California Edison have built up $12 billion in debt as they have borrowed to keep the lights on.

Pacific Gas & Electric claims it is in default on a total of $726 million of short-term borrowings. The utility expects to accrue and additional $648 million in debt over the next two months.

Despite Pacific Gas & Electric’s woes, the federal government has renewed orders requiring power generators in other states to sell electricity to California. However, the latest order expires in less than two weeks, and the Bush administration says that it would not be renewed.

Without power assistance from other states, California could face such severe electricity shortages that it would have to impose blackouts, and could even face damage to its power grid.