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.