CHAPTER 11: Gov. Davis says action complicates negotiations with Edison.

Ventura County Star

Pacific Gas and Electric, which delivers power to 13 million users in Northern California, filed for bankruptcy Friday, turning its back on Gov. Gray Davis and abandoning hopes for a negotiated resolution to the state’s energy crisis.

Southern California Edison, which supplies electricity to Ventura County, said it does not plan a voluntary bankruptcy.

But an Edison official admitted the PG&E action could spur its uneasy creditors to force Edison into bankruptcy.

PG&E shocked Davis and others close to the crisis, becoming the largest public utility in U.S. history to file for bankruptcy.

The move clouds California’s power future even more, mixing a federal judge into the tangled collection of individuals who will be trying to clean up the mess of problems facing the state’s investor-owned utilities, their creditors and customers.

“Ultimate decision-making will no longer be done by political decision makers, but a federal judge,” said James L. Sweeney, a professor of management science and engineering and a senior fellow of the Stanford Institute for Economic Policy Research. “It’s a little scary because it’s uncharted territory. You really aren’t sure what direction such a judge will follow.”

Sweeney said the situation appeared to be the result of a “too-little, too-late” approach by Davis to raising electricity rates.

Similar statements were made by PG&E, which claimed to be amassing “unreimbursed energy costs” at a rate of more than $300 million per month.

“The regulatory and political processes have failed us, and now we are turning to the court,” said Robert D. Glynn Jr., chairman of PG&E‘s corporate parent, PG&E Corp. “We expect the court will provide the venue needed to reach a solution.”

Significant profits were reaped by PG&E and other California utilities during the first two years of energy deregulation in the state, but weather, economic growth and increasing demand for power combined into a kind of perfect storm this past winter to result in skyrocketing wholesale electricity prices.

The prices shocked the investor-owned utilities, which were prevented by the rules of deregulation from passing the costs in to consumers.

In addition, an imbalance in supply and demand resulted in rolling blackouts. The supply of power statewide continues to be a problem, and dozens of rolling blackouts are expected this summer, unless significant conservation occurs.

Some observers and scholars speculated that PG&E‘s move could help this summer’s expected blackouts because now, at least, all producers of electricity are assured of being compensated instead of facing unpaid bills. A lack of payment prompted some power plants to shut down last month, resulting in rolling blackouts throughout the state.

PG&E says it now has an $8.9 billion deficit, the result of buying electricity at what it called exorbitant prices on the California power market. PG&E told the Associated Press it had $2.6 billion in cash and outstanding bills of $4.4 billion as of March 29.

Edison is in a similar situation, with more than $4 billion in outstanding bills. But Edison is opting to continue efforts to negotiate a solution with Davis.

“This is a political and regulatory problem and it requires a political and regulatory solution,”said Ted Craver, chief financial officer of Edison International, Southern California Edison‘s parent company.

However, Craver said, PG&E‘s move could complicate the situation for Edison.

Speaking Friday to stockholders on an Edison Web cast, Craver said PG&E‘s bankruptcy might tempt smaller power generators to force Edison into involuntary bankruptcy. It only takes three creditors to force Edison into bankruptcy. Ten of them have now filed lawsuits.

The smallest of the power generators, many of whom produce electricity through solar technology, are owed large sums of money by Edison and PG&E and, they say, it’s causing them hardship. Bankruptcy would ensure that they will at least be compensated for all the power they sell in the future.

PG&E‘s bankruptcy announcement “raises the risk that more people get more discouraged that nothing is happening here,” Craver said.

But, Craver said, talks with Davis are “in an advanced stage”and John Bryson, Edison‘s chief executive officer, was expected to meet with Davis Friday night. Davis also touted the meeting in a statement he released Friday afternoon.

“Obviously we wouldn’t be in these discussions if we didn’t see progress on some of our core principles,”Craver said.

Among those core principles is the possibility that electricity rates could be raised more than the recent 42 percent, tiered increase enacted by the California Public Utilities Commission.

Davis released a tautly worded statement in response to the move by PG&E, which came the morning after the governor’s statewide address calling for conservation.

“PG&E was not pushed into bankruptcy but plunged themselves into bankruptcy for their own strategic advantage — not the best interests of the people of California,” Davis said. “I am hopeful we will have a satisfactory result (in talks with Edison) for the people of this state within the next few days, proving that negotiation, not bankruptcy, is the appropriate path.”

Doug Heller, of the Foundation for Taxpayer and Consumer Rights, condemned PG&E and speculated that Davis’ speech Thursday night may have signaled that the state was not willing to do what PG&E wanted.

“Davis promised PG&E a bailout, but I think PG&E recognized that the Legislature would have a hard time swallowing that and voters would certainly reject it.”

Sen. Debra Bowen, D-Marina del Rey, chairwoman of the Senate Utilities and Commerce Committee, said she believes the state will be able to collect from PG&E the full retail value for the $3.8 billion worth of power it has purchased since the passage in January of AB 1X, urgency legislation that allowed the state to get into the electricity-buying business.

The bill specified that the state would sell the power directly to consumers, with utilities acting only as distributors and billing agents. Although PG&E has yet to pass on all its collections for state-purchased power, Bowen said, those revenues will be off-limits to other creditors.

On the down side, she said, the state will have to get in line with other creditors in order to collect perhaps hundreds of millions of dollars in purchases it made before passage of AB 1X.

The biggest long-term threat, she said, is that a bankruptcy judge will force PG&E to sell its transmission lines to pay debts.

The bankruptcy jeopardizes the Davis administration’s plan for rescuing Southern California Edison from bankruptcy, she said. An agreement in principle had been reached for the state to purchase Edison‘s portion of the grid.

“It doesn’t do the state much good to purchase a piece of the transmission grid,” she said.

With that plan in jeopardy, she said, the pressure on Edison to also file for bankruptcy increases.