Subject: Gov Comments Supporting Windfall Profits/More Negative Talk from  Lynch


HEADLINE: ?Calif.
Governor To Address State  BYLINE: JENNIFER COLEMAN   DATELINE: SACRAMENTO, Calif.
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?While Gov.
Gray Davis prepared to speak to the state Thursday night about California's energy crisis, economic forecasters predicted the power crunch would lead to higher taxes and scrapped public projects.
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?Davis said Wednesday he hadn't written his five-minute address, but that he planned to discuss ''the progress that we've made and what we have to get through.''
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?Among other things, he was expected to talk about the more than 40 percent rate increases approved last week by the Public Utilities Commission for customers of the state's two largest utilities, Pacific Gas and Electric Co.  and Southern California Edison Co.
He has asked California television stations to carry his remarks live.
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?California has been hit with rolling blackouts and tight power supplies blamed in part on soaring wholesale electricity costs.
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?On Wednesday, the state got more bad economic news: The UCLA Anderson Business Forecast said Californians would face higher taxes and a tighter  state budget because of the billions of state dollars being spent on emergency  power.
The blackouts and the state's scrutiny of private power suppliers also  threaten to scare away new businesses, the report said.
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?Facing continued refusal from federal energy regulators to cap high energy prices, Davis said Wednesday he would be willing to support a windfall-profits tax on electric generators that have made a fortune selling power to  California this year.
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?A bill to that effect was introduced Wednesday in the state Assembly.
It would tax gross receipts that ''significantly exceed'' the cost of producing power and tax profits of power marketers who have bought power and later sold  it at much higher rates.
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''We continue to allow some electricity generators and middlemen to reap enormous profits on their sales of electricity into the state.
This  profiteering must stop,'' Democratic Assemblywoman Ellen Corbett said.
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?Duke Energy spokesman Tom Williams said he doubted a tax on a selected industry would be legal.
He added that such a tax would discourage generators from building new power plants in California.
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''The governor has made very clear that he is trying to do whatever he can  to increase the amount of generation in California and reduce the price.
Windfall-profits taxes do neither of these,'' Williams said.
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?Davis said he generally opposes treating profitable companies in that  manner, ''but these profits are outrageous and are at our expense.
The only things companies understand is leverage.''
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?For the first time, Davis also said the state should let companies buy their power from generators instead of going through the utilities.
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?The Utility Reform Network and the head of the PUC oppose the idea.
They argue residential customers and small businesses unable to contract with generators would get stuck with the bill for the billions of dollars the state has and will spend buying electricity for the customers of the cash-strapped utilities.
HEADLINE: 'Chaos' in state electricity planning  BYLINE: By Rick Jurgens  BODY:  ?
?LOS ANGELES _ Two hundred of the finest economic minds in California  gathered Wednesday at UCLA's Anderson School of Management to discuss the state's  energy crisis but, as state Public Utilities Commission President Loretta Lynch  spoke, the power to her microphone cut out intermittently and unexpectedly.
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"I don't have any control over this," the beleaguered technician operating the sound system called out after repeated outages.
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"I feel your pain," Lynch replied with a smile.
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?No one in the audience doubted that.
After two rounds of rolling blackouts that state officials were powerless to prevent, Lynch last week led the commission to hike retail power rates 42 percent, sparking protests from consumer groups.
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?But at UCLA Lynch had power and natural gas producers in her sights.
She promised to lead "a war against the sellers who are taking so much value out  of the California economy and not adding a whit of value."
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?Lynch said she favored reinstatement of wholesale price caps that were ended by the Federal Energy Rate Commission in December but wasn't counting on that.
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?Even without those caps, she said she was optimistic that the state had enough tools to restrain price hikes by wholesalers and avoid another rate  hike.
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?Those tools include conservation, purchases of long-term power contracts by the Department of Water Resources, utility cost cutting and making sure the small power producers known as qualifying facilities are online, she said.
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?Lynch dismissed the state's 1996 deregulation plan as a "failed experiment" and said she did not accept a questioner's premise that "true deregulation is our goal."
The problem was that "the state stepped back too much" from management of the power system and that there had been "too much ideology and theory and not enough practical solutions," she added.
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?A panel of experts offered some grim predictions.
"We are expecting severe difficulties for this summer and next summer," said Barry Sedlik, a Southern California Edison manager.
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?Mark Bernstein, an analyst with the Rand Corp. in Santa Monica, said the electricity problems are spreading.
"This may go on for a while and it's not just California," he said.
"In the near term we've got chaos," he added.
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?But he offered one macabre ray of hope.
He said that federal policymakers  may feel more urgency to step in if, as now appears possible, rolling  blackouts occur in 2002 in Florida where, he didn't need to add, President  Bush's brother is governor.
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?Problems with the transmission system there, as well as generation shortage, could hurt Florida but the state has enough time to avoid a crisis, he said in an interview.