Developments unfolded quickly in the West as California edged toward a takeover of its investor-owned transmission grid and creation of a new agency to finance powerplant construction and upgrades. In Nevada, Gov. Kenny Guinn (R), vowing to "avoid the mistakes made in California," postponed electrical deregulation indefinitely and unveiled a six-point energy protection plan aimed at ensuring energy reliability, consumer protection and long-term rate stability. But industry observers fear that the rapid pace of California's transition and the expanded state involvement could backfire.

Under an agreement outlined Feb. 23 by California Gov. Gray Davis (D), the state will pay $2.76 billion--about 2.3 times book value--for the portion of the state's transmission grid owned by Rosemead-based Southern California Edison Co. sce will continue to manage the grid under a lease arrangement. "They have expertise that has accumulated over the decades, which the state doesn't have," Davis said. He suggested that the state takeover of the grid may help with the estimated $1 billion in upgrades and repairs that the debt-plagued utilities cannot afford.

But Trans-Elect, a Washington, D.C.-based private company, is continuing to press its offer of $3 billion for sce's system and $2.25 billion for Pacific Gas & Electric Co.'s, according to Electric Power Daily Online, a Platts newsletter owned by the McGraw-Hill Cos., which also owns enr. Robert L. Mitchell, executive vice president, says Trans-Elect is prepared to invest in the necessary improvements. "There are a number of congestion points that would need to be addressed," he says. Among them are an upgrade to Path 15, a transmission bottleneck in central California, and interconnections with Arizona's grid, he says.

Davis acknowledged that sale negotiations with the state's other major utilities, San Francisco-based PG&E and San Diego Gas & Electric Co., are proceeding more slowly.

Over the strong objections of Republicans to a greater public role, the state legislature approved a proposal by Senate President Pro-Tem John Burton (D) to create a new state authority to oversee financing, construction and upgrade of powerplants. The California Consumer Power and Conservation Financing Authority could issue up to $5 billion in bonds to finance construction of new capacity in the state as well as upgrades for aging, inefficient plants, many of which are 30 or 40 years old. Energy efficiency, renewable energy, and conservation also will be promoted. The Democrat-controlled state assembly is expected to consider the proposal this week, says Dave Sebeck, a spokesman for Burton.

CAUTION. Some industry officials warn that an increased state role in the power industry could be counterproductive. "California is moving in almost the opposite direction" from much of the rest of the nation, warns Bill Brier, vice president of Washington, D.C.-based Edison Electric Institute, a lobbying association for investor-owned utilities. The state is creating "an enormously complex
system...to avoid the reality of price increases," he contends. Brier says rate increases are needed to encourage conservation. Higher prices also would restore investor confidence in the state, he contends. The proposals also fail to address a permitting process that takes two to three times as long as in other states, he warns.

POWER UP. In Nevada, Guinn announced a commitment from the Las Vegas Valley Water District to provide 2,000 acre-ft of groundwater rights at Apex for four greenfield merchant powerplants. The developers, Duke Energy North America, Houston; Pinnacle West Capital Corp., Phoenix; Mirant Corp., Atlanta; and Reliant Energy Power Generation Inc., Houston, have all agreed to keep 50% of their combined 3,200-Mw output in-state in exchange for a streamlined permitting process--from 12 months to no more than 30 days--and water rights.

Guinn also convinced Las Vegas-based Nevada Power Co. to build a $250-million, 550-kv transmission line from Apex to Boulder City, tying into a main Los Angeles grid. Bids for the 100-mile-long, steel-lattice, single-circuit line have not yet been advertised, but work could begin
by December with completion in June 2003.