California’s State Assembly narrowly approved its version of a rescue plan for Southern California Edison late last week, although the $2.9 billion deal still faces an imminent, possibly nasty battle in the Senate.
As the legislature winds its way down to a September 14 recess for the year, time is running out for lawmakers to sign off on a memorandum of understanding (MOU) agreed to in April by the governor and the struggling utility.
The legislation (SB 78XX) needed approval from more than half of the 80-member Assembly, and it squeaked through last Thursday by a 41-32 vote. No Republicans voted in favor of the bill.
Gov. Gray Davis (D) declared himself “very pleased” at the Assembly’s action. “We’re making progress,” he said Friday. “And now the next task is to find a way to reconcile the differences between the Assembly version and Senate version…but I think, in the end, we will do so.”
The governor reiterated that the rescue plan was not a “bail-out” for the utility, as some critics have charged. “I think it’s incumbent upon us to work as hard as we can and keep them solvent and still not give away the store….
“But I want to make it clear-we’re not doing this for Edison. We’re doing it for ourselves, so we can get people who really understand how to buy power, back in the power buying business,” said Davis. “…Over the long haul, the state will be much better served having utilities buy power than the state.” Davis also said he was “hopeful” that the MOU would be ratified by Friday. “I think that’s entirely doable now, since it’s passed both houses, albeit in different forms. Our goal will be to get that done before the legislature recesses.” Edison, for its part, said it was “encouraged” by the Assembly vote, although it referred to the bill as a “framework” for returning the utility to health.
“The bill approved today by the Assembly still leaves Southern California Edison at risk by providing only $2.9 billion of the $3.9 billion needed,” Robert Foster, executive vice president of external affairs for Edison International, the utility’s parent company, said in a statement released after the vote. “Nevertheless, we are encouraged by the progress made by the Assembly toward creating a workable framework to get [the] state out of the power procurement business and restore Southern California Edison to creditworthiness. We are hopeful that the amended bill will receive careful attention in the Senate.”
The bill’s narrow approval by the Assembly, after numerous amendments, does not auger well for its chances in the Senate, which approved a much less generous version of the bill in July.
Promising to bring considerable political pressure, consumer advocacy groups said they remain far from thrilled about the deal. The Foundation for Taxpayer & Consumers Rights vowed it would force a referendum to reverse the bill. The Utility Reform Network (TURN) claimed the deal would result in ratepayers paying more for power, pointing to “inadequate” exit fees attached to consumer switching and high power prices locked in by the state through long-term contracts.
“This is a frightening plan,” said Mike Florio, senior attorney for TURN. “It reads as if the same scoundrels that led the legislature into deregulation, the utilities and the large commercial customers, are still running the show.”
As with the original Senate version of the bill, the plan gives the state the option of buying SCE’s transmission assets within the next five years, valuing the lines at two times book value. In the original MOU, the governor agreed to pay 2.3 times book value for the lines ($2.76 billion).
Instead of selling its transmission facilities, the legislation would allow SCE to get money by floating bonds worth up to $2.9 billion, backed by dedicated revenue from consumers using more than 20 kilowatts of electricity. State leaders say the bond revenue will not require another rate increase for those customers-estimated at about 180,000 commercial and industrial users.
In a deft political maneuver, the Assembly bill prevents SCE from using any of that $2.9 billion, however, to pay off large generators who are owed billions in back power payments. Instead, the money will go to small cogenerators and renewable power providers, some of whom shut down earlier this year due to lack of payment.
For larger power generators, SCE can use its $425 million tax return to pay off some of those debts. State officials have repeatedly blamed merchant power plant owners like Duke Energy and Reliant Energy Inc. for price gouging.
The bill also:
- Authorizes consumers to switch to alternative suppliers beginning in 2003, although those customers would be subject to “exit fees” to help pay off costs incurred by the state when it entered into long-term power contracts;
- Requires Edison to turn over more than 20,000 acres of land to the state;
- Demands SCE sell power from its 320 megawatt Sunrise plant to the state at cost-of-service rates for 10 years;
- Establishes a refund account, ensuring that the first billion dollars of any refunds awarded to the company will be split equally between SCE and ratepayers. Refunds exceeding $1 billion will go entirely to SCE’s customers; and
- Eliminates the ability of state regulators to second-guess the reasonableness of long-term power contracts made by the utilities. Such prudence reviews acted as a major disincentive to forward power contracts in the past.