from today's LA Times....

Davis is essentially endorsing the CPUC's proposed rate design where 
Residential pays less than their share, ie. less than the 3cents.
He is also suggesting that, contrary to the CPUC decision last week, that 
some of the increase go to bailing out the IOU's
-- if they sell the transmission.

Davis Acknowledges Need for Rate Hike 

                                                           Electricity: In a 
statewide TV broadcast, he says the average would be 26.5%. For
                                                        the first time, he 
calls situation a "crisis." 

                                                        By DAN MORAIN, Times 
Staff Writer 

                                                             
SACRAMENTO--After spending months voicing opposition to rate hikes, Gov.
                                                        Gray Davis 
acknowledged to a statewide television audience Thursday night the need
                                                        for an electricity 
rate increase that would average 26.5%.
                                                             For the first 
time calling it an "energy crisis," Davis enumerated steps he has taken,
                                                        then said he has 
fought "tooth and nail against raising rates." But citing a need for
                                                        increases, the 
Democratic governor called for a tiered system in which people who use
                                                        the most electricity 
pay the most--as much as 37% more if they use more than twice
                                                        their minimum 
allotment.
                                                             "Here's the 
point: The more you use, the more you pay," Davis said. "The more you
                                                        conserve, the more 
you save. Conservation is our best short-term weapon against
                                                        blackouts and price 
gouging."
                                                             Davis said his 
proposed rate plan is sufficient to help reduce the $13-billion debt of
                                                        Southern California 
Edison and Pacific Gas & Electric. Although the bulk of the rate
                                                        increase would be 
used to help California finance bonds for long-term power
                                                        purchases, about 10% 
to 15% would be earmarked for the utilities--so long as they
                                                        agree to sell their 
transmission lines to the state, according to the administration.
                                                             The decision to 
offer the utilities at least some rate hike monies brought a sharp
                                                        response from 
lawmakers. Consumer advocates also are sure to be unhappy.
                                                             "We are not in 
this business to bail out these guys," said Senate President Pro Tem
                                                        John Burton (D-San 
Francisco).
                                                             Added Harry 
Snyder of Consumers Union: "Absolute giveaway . . . He is going to
                                                        pay them off 
completely for all their mistakes."
                                                             The governor 
took the unusual step of reserving air time on statewide television at a
                                                        time when he is 
slipping in polls and surveys show that the public is increasingly
                                                        concerned about the 
energy crisis. Gov. Pete Wilson took a similar step during the
                                                        recession in 1992 
when he moved to raise taxes and cut government spending.
                                                             The speech took 
on greater urgency as the California Independent System
                                                        Operator, the entity 
that oversees power distribution, warned Thursday that the state
                                                        will face 34 days of 
rotating blackouts if consumers and businesses use the same
                                                        amount of electricity 
this summer that they did last year. The blackouts could be
                                                        extensive enough to 
darken 5 million homes at once.
                                                             The governor's 
speech came hours after the Legislature approved a record $1.1
                                                        billion in energy 
conservation measures designed to provide consumers with incentives
                                                        to reduce electricity 
use. 
                                                             In his speech, 
Davis renewed his call to Californians to curtail electricity use by at
                                                        least 10%, even as a 
new report was issued warning that the state faces repeated
                                                        summer blackouts 
because of a major gap in the supply of power during the coming
                                                        months.
                                                             "We are 34 
million strong, and if each of us does our part, we can minimize
                                                        disruptions and get 
through the summer," Davis said.
                                                             The governor did 
not speak in detail on any issue, including the rate hike. The talk
                                                        lasted a mere five 
minutes, delivered in fewer than 800 words.
                                                             Under Davis' 
proposal, Southern California Edison residential customers would face
                                                        an average increase 
of 2.21 cents per kilowatt hour. San Diego Gas & Electric
                                                        customers would have 
a 2.57-cent hike, while Pacific Gas & Electric would have a
                                                        2.44-cent boost. 
Business rates would rise slightly more.
                                                             Davis blamed the 
rate hikes on rising natural gas prices, a lack of adequate
                                                        generation and the 
federal government's refusal to cap wholesale power prices.
                                                             Rates for 
customers of the state's two largest utilities rose 9% in January. That boost
                                                        remains in effect. 
Legislation approved earlier this year bars further rate increases for
                                                        those who use up to 
30% more than their so-called baseline allocation.
                                                             According to 
administration estimates, 53% of consumers would experience no rate
                                                        hike beyond the 9% 
boost approved in January. A fourth of all households would face
                                                        increases averaging 
34.5%.
                                                             Under the 
proposal, which requires Public Utilities Commission approval, people
                                                        who use up to 200% of 
their baseline allocation would see rates on that portion of their
                                                        electricity use go up 
by 9%, plus the 9% already imposed for a total of 18%.
                                                             Electricity 
users who consume more than twice their baseline allocation would pay
                                                        between 33% and 37% 
more for kilowatts used beyond 200% of their baseline
                                                        allocation.
                                                             Davis' proposed 
rate increase is somewhat lower than that proposed by the PUC, in
                                                        part because he had 
more information, including the price that the state is paying for
                                                        electricity, his 
aides said.
                                                             "My proposal 
raises rates fairly, assures us of long-term power, stabilizes the utilities
                                                        and promotes 
conservation," Davis said.
                                                             Although there 
has been wide news coverage of the crisis, the governor's aides said
                                                        Davis felt a need to 
talk directly to Californians to sum up the steps that he has taken to
                                                        solve the problem.
                                                             Perhaps adding 
to the urgency, utility customers could start seeing increases in their
                                                        bills as early as 
next month. Further raising the stakes for the speech, Davis warned this
                                                        week that supplies 
will be so short that there could be blackouts by the end of the
                                                        month, and continue 
into May and June.
                                                             "The public is 
more aware of what is going on on this issue than any other issue I
                                                        have seen, ever," 
said Democratic political consultant Gale Kaufman. "People have
                                                        gotten three or four 
bills that they're unhappy with and they may have been in a
                                                        blackout or two. 
There is a concern for the future.
                                                             "By not talking 
to the public for a long time," Kaufman said, "and focusing it on one
                                                        speech in one day, 
people will dissect this five minutes, much more than if he would
                                                        have had a regular 
dialogue."
                                                             In what some 
political consultants see as a reflection of Davis' declining political
                                                        strength, a recent 
Times poll showed that in Davis' hometown of Los Angeles, only
                                                        14% are more likely 
to vote for a candidate endorsed by Davis, while 21% would be
                                                        less likely.
                                                             Several recent 
private polls show that a majority of Californians would not vote to
                                                        reelect Davis if he 
were on the ballot today, though Davis does not face voters in a
                                                        general election for 
19 months, giving him plenty of time to recover.
                                                             "People need to 
be reassured that there is a strong sense of direction," said Bill
                                                        Carrick, a Democratic 
consultant. "I don't think people are looking for a magic wand.
                                                        But they need a sense 
that there is sense of direction."
                                                             Other political 
consultants said Davis used television to get his message out because
                                                        newspaper accounts 
have raised questions about his handling of the situation. Also,
                                                        voters who get the 
bulk of their information from television news generally have less
                                                        knowledge about the 
nuances of the crisis.
                                                             "He is not doing 
well with the print story," said Republican consultant Wayne C.
                                                        Johnson, "so he has 
decided to change venues."
                                                             Johnson, like 
many consultants, also said the governor's declining poll numbers likely
                                                        influenced his 
decision to make the television appearance, carried on most stations
                                                        across the state 
during 6 p.m. news shows.
                                                             "Gray Davis 
doesn't do anything that the polls don't dictate," Johnson said. "He is
                                                        doing this because 
the polls show his support is in free-fall."
                                                             Until Thursday, 
Davis had not characterized the situation as a "crisis," instead calling
                                                        it a "challenge." 
That euphemism raised the hackles of many legislators.
                                                             "It's pretty 
clear: The public is angry and scared," said state Sen. Don Perata
                                                        (D-Alameda). "They 
want a sense that someone is in control, and that there is some
                                                        certitude of where 
we're going. We're lacking both."
                                                             The Legislature, 
meanwhile, approved two measures touted as ways to cut the
                                                        state's power needs 
this summer, when hot temperatures traditionally cause demand to
                                                        surge--a situation 
that this year could result in blackouts.
                                                             The bills had 
been bogged down in squabbling between the Assembly and Senate.
                                                        The delay raises 
questions about whether the conservation incentives will be in place
                                                        long enough to have 
an immediate effect.
                                                             The bills, a 
$709-million measure by state Sen. Byron Sher (D-Stanford) and a
                                                        $409-million measure 
by Assemblywoman Christine Kehoe (D-San Diego), contain a
                                                        dizzying range of 
financial "carrots" designed to help people cut power use.
                                                             There is $50 
million to help low- and moderate-income consumers replace
                                                        energy-wasting 
appliances such as old refrigerators with new, more energy-efficient
                                                        equipment, $60 
million to help consumers replace older lighting systems, $7 million to
                                                        teach school children 
about energy efficiency, and $50 million for electricity meters for
                                                        businesses.
                                                             The Senate bill 
won final passage on a 31-6 vote; the Assembly bill cleared the
                                                        Legislature on a 
55-15 vote. However, not everyone supported the concept of
                                                        government subsidies 
to reduce power use.
                                                             Meanwhile, 
utility watchers issued gloomy reports early Thursday, helping to drag
                                                        down the stocks of 
Edison International and PG&E Corp., parent corporations of the
                                                        beleaguered 
utilities. Edison closed at $12.64 per share, down 34 cents or 2.6%, while
                                                        PG&E fell to $11.38 
per share, down 27 cents or 2.3%, on the New York Stock
                                                        Exchange.
                                                             Standard & 
Poor's said it is unlikely that Southern California Edison and Pacific Gas
                                                        & Electric will 
regain a sound credit rating soon. The Wall Street debt-rating firm
                                                        lowered the 
utilities' credit rating to high-risk junk-bond status in January when they
                                                        began defaulting on 
debt.
                                                             Standard & 
Poor's cited a lack of action by Davis and state legislators, and said rate
                                                        increases approved by 
the PUC will not be sufficient to pay all electricity costs. Banks
                                                        and other creditors 
will run out of patience before long unless a settlement is reached to
                                                        help the utilities 
pay past debts, Standard & Poor's said.
                                                             The firm 
predicted that "the coming weeks are likely to be critical if the utilities 
are to
                                                        be made financially 
sound companies once again and avoid bankruptcy proceedings."