Associated Press
In a bid to pull the state’s second biggest utility back from the brink of bankruptcy, Gov. Gray Davis announced a deal on Monday for the state to buy power lines from Southern California Edison for $2.76 billion.
The deal is a key part of the governor’s plan to keep the cash-strapped utility solvent. It would give Edison money to reorganize its debts and pay power generators, many of which have not been paid for power since last November.
”These were tough negotiations but they’ve produced a good, balanced deal,” Davis said.
The deal requires Edison to provide power from its generation plants to customers at low rates for 10 years and to drop a lawsuit seeking hikes in consumer rates, Davis said. It still requires approval from the California Public Utilities Commission.
Davis had originally proposed buying parts of the state’s transmission grid owned by all three of the state’s investor-owned utilities. That plan was dealt a serious blow Friday when Pacific Gas & Electric, the state’s largest utility, pulled out of negotiations and filed for bankruptcy protection.
SoCal Edison chairman Steve Frank said the state would benefit more from improving the utility’s financial status than from owning the lines.
Frank said the deal for the transmission lines gives the state a hard asset in return for the $2.76 billion. But he said the real value was helping Edison become a creditworthy buyer of electric power.
The state has been spending $45 million to $50 million a day since January to buy power for customers of PG&E and Edison.
Wholesale power suppliers have refused to sell electricity to the utilities because their credit is nearly worthless.
Davis said the amount the state offered for the lines was more than twice their estimated value. He said the deal was worth it because Edison had agreed to sell low-cost power.
Under the agreement Monday, Edison will start buying power on its own at the end of 2002. The state will continue buying power for the utility in the meantime.
Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights said buying the power lines was a way for the state to help Edison without appearing to bail out the utility. He said Davis ”misled the public… by trying to pretend it’s a massive buyout rather than bailout.”
Republican Assemblyman Dave Cox also criticized the Democratic governor’s plan, saying the power lines could require billions of dollars in improvements.
Edison and PG&E say they have lost more than $13 billion since June because of skyrocketing wholesale power prices. They cannot pass on their costs to customers under the state’s 1996 deregulation law.
Edison also was expected to file an update Monday on its financial condition with the Securities and Exchange Commission.
Meanwhile, PG&E on Monday asked U.S. Bankruptcy Judge Dennis Montali to issue a temporary restraining order to stop the California Public Utilities Commission from trying to collect $8 billion the state says it is owed for buying power on behalf of the utility.
PG&E said the PUC has incorrectly calculated the amount it owes.
”I think they’re asking the judge to say they do not have to comply with orders of the California Public Utilities Commission,” said Gary Cohen, an attorney for the PUC.
