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The Daily News of Los Angeles

Under a deal to keep cash-strapped Southern California Edison out of bankruptcy, Gov. Gray Davis said Monday the state has agreed to buy the utility’s power lines for $2.76 billion.

The deal, which comes on the heels of Pacific Gas & Electric’s bankruptcy filing Friday, was criticized as a bailout – not a buyout – by consumer advocates and Republicans – and even Democrats were wary, saying they needed to see the fine print before judging Davis’ deal.

But the Democratic governor, under mounting criticism over his handling of the state’s energy crisis, called it a “good transaction.” The plan calls for Edison to provide “low-cost regulated power” to the state for 10 years and dismiss any lawsuits that sought to raise electricity rates. The state will generate money through fees for transmission line use.

The pact requires approval of the state Legislature and the Public Utilities Commission.

“It moves the state forward,” Davis said during a press conference at his Los Angeles office. “It provides stability and certainty to the ratepayers of Southern California.”

Consumer advocates said the governor overpaid for the transmission lines – just 12,000 miles of the 32,000 miles in the state. The price is 2.3 times the net book value of the lines, but Davis’ office said the $2.76 billion price was an accurate reflection of fair market value. Critics say by the time other costs are factored in, it will be a windfall for Edison.

“This is a $5 billion bailout (for Edison),” said Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “It’s a thumbs-down deal. It doesn’t solve anything – it doesn’t give us complete control of the transmission system and it doesn’t do anything to protect us from the profiteering of the energy companies.”

As a result, Rosenfield predicted, Edison utility rates would leap 40 percent beyond the 40 percent jump recently approved by the PUC.

Matt Freedman, an attorney for The Utility Reform Network, said it’s a windfall for Edison.

“This deal makes PG&E look like a chump, because they could have gotten everything they wanted by simply negotiating with the governor,” he said.

But the governor’s aides said the deal will help stabilize the energy market. Davis spokesman Steve Maviglio said owning the lines gives the state a hard asset, rather than having to make an outright bailout. Control of the lines gives the state more leverage in negotiating with the federal government, and also gives it the ability to make needed improvements to the lines.

Under the deal:

Edison will commit the resources of an out-of-state unregulated power plant to California on a fixed-price basis for 10 years. The plant must be brought on-line by Aug. 15 or Edison faces a $2 million penalty.

Edison will invest $3 billion over five years in capital improvements.

Edison‘s parent company will also refund at least $400 million to the utility.

For Edison, the deal should help the company pay off its $5 billion in debt, said Edison International Chairman John Bryson.

Some power generators have been reluctant to sell electricity in California because of the crisis, and this deal should help ease their concerns, Bryson said. Still, he acknowledged, it may not be enough to avoid blackouts this summer.

“I think it’s going to be a very tough summer,” Bryson said. “None of us know whether there will be supply disruptions over the summer.”

Politically, the deal faces an uncertain future with Republicans lining up against the plan.

“I don’t think the purchase of the grid makes any sense at all,” said Assemblyman Keith Richman, R-Granada Hills. “I think the grid is a useless asset that is going to require hundreds of millions, if not billions, of dollars of upgrades and maintenance on an annual basis.

“And the state’s money could be used much better for other things, such as roads, school facilities and water projects.”

Democrats, though, were cautiously supportive while waiting for details.

Assembly Speaker Bob Hertzberg, D-Van Nuys, said it appears consistent with a plan Davis outlined to Assembly Democrats recently.

“Of course, we are anxious to see the details, including the costs to the state,” Hertzberg said in a written statement. “And I am most anxious to review the protections the plan provides to California residential and business consumers.”

Sen. Richard Alarcon, D-Van Nuys, a member of the Senate energy committee, said the deal has elements that could benefit ratepayers, “but the devil’s in the details.”

“In light of PG&E‘s bankruptcy, I think it bodes well for the spirit of California that we have companies that are willing to reinvest in the state, and not run to the bankruptcy court,” Alarcon said.

Some public policy analysts raised serious questions about Monday’s transmission sale.

“It depends on what they do with it,” said Lynne Kiesling, director of economic policy for the fiscally conservative Reason Public Policy Institute in West Los Angeles.

“If the state plans to run and operate a transmission service, it’s a bad idea,” said Kiesling, a professor of economics at Northwestern University in Chicago. “They’re not qualified to do it; they don’t have the expertise; it adds another politicized layer to the process.”

A more feasible solution, she said, may be to turn the system over to a private firm for operation.

Davis said he is also negotiating with San Diego Gas & Electric to acquire its transmission lines and hopes to eventually acquire PG&E‘s lines, either through the bankruptcy proceedings or by directly negotiating a deal. PG&E pulled out of negotiations with the governor.

Negotiations with Edison had been ongoing for weeks, but PG&E‘s bankruptcy filing greatly accelerated the process, Davis said. Negotiators worked all weekend to complete the deal.

Consumer Watchdog
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