Democratic lawmakers and Gov. Gray Davis Friday will propose a plan to rescue two debt-ridden utilities by buying their transmission lines, requiring their parent companies and ratepayers to pick up the rest of the tab.
With the state paying $50 million or more each day for power and the threat of rolling blackouts present for the 31st straight day, Davis on Thursday pinned his hopes on what he calls a “balanced” recovery plan that will return the utilities to fiscal health and deliver the state from its energy nightmare.
The Democratic governor’s office promoted the proposal as “a consensus agreement,” but Republican legislators opposed the approach, and Davis appeared willing to go forward without GOP support.
Democratic lawmakers pondered the proposal into the evening as the governor sought to secure support from his own party. There was little evidence that Pacific Gas and Electric Co. and Southern California Edison would agree to the terms.
According to sources, the plan to be unveiled by Davis Friday will authorize state revenue bonds for the purchase of the transmission system owned by the two utilities. With the infusion of cash restoring their creditworthiness, utilities could then finance the remainder of their debts with private bonds. The state would also authorize rates dedicated to repayment of those bonds. Consumer advocates said such an arrangement would amount to a rate increase.
The state also would require the parent companies of the utilities to dedicate their 2000 tax refund to help retire the debt – something both utilities have said they would be willing to do.
A recently completed PUC audit found that PG&E‘s parent PG&E Corp. stands to collect $500 million to $1 billion in a federal income tax refund, largely because of the utility’s losses. Edison officials have said its parent, Edison International, is due a $500 million refund.
Also under the proposed deal, the utilities would drop their federal lawsuits against the Public Utilities Commission that seek massive rate increases to cover their losses.
While the book value of the transmission system is estimated at $3 billion to $4 billion, its actual value may be twice that much. The utilities say they have run up nearly $13 billion in debt paying wholesale prices for energy while retail rates have been capped under the state’s four-year-old deregulation law. Audits of the companies’ books suggest the actual debt is about half that, while others suggest it is far lower.
Consumer advocates blasted the proposal as a bailout that would increase rates, and vowed to go forward with an initiative to undo the deal.
Doug Heller, with the Foundation for Taxpayer and Consumer Rights, said policymakers will finance the deal in such a way that Californians won’t see a rate hike in the short term, but will be paying for it with a portion of their rates for many years.
“(Davis) will make as many generations bail out these companies as it takes for him to come out alive,” Heller said. “It sounds like he’s giving the utilities everything they want.”
Other consumer groups cautioned that they would oppose any transmission line deal that includes charging people more for electricity.
“I don’t think there have to be rate increases at all, and I don’t think we can support anything that includes rate increases,” said Nettie Hoge, head of The Utility Reform Network (TURN).
One plan under discussion at the Capitol would allow utilities to continue collecting a “competition transition charge” that has been included on ratepayers’ bills under deregulation in 1996.
The charge, which is based on the amount utilities pay for wholesale power, was supposed to stay in place only until a state-ordered rate freeze was lifted, in 2002 at the latest.
Hoge said an extension could represent a disguised rate hike. “It’s very easy for them to put it on the ratepayers’ backs and say it’s just a little bit, forever,” she said.
Minority Republicans also criticized the transmission line plan as a “utility bailout” that could drain future funds for state services.
“I want to make it clear to you that this is a bailout,” Minority Floor Leader Bill Campbell, R-Villa Park, said in a press conference with other Republican leaders. “What they’re talking about is using limited state resources and buying very old assets.”
Campbell said Republicans fear the state is rushing too fast into a “bad deal.” He suggested the process be slowed down and that the Public Utilities Commission look into whether the utilities truly need state relief to avoid bankruptcy.
“I don’t want them to go into bankruptcy,” he said. “But we’re saying let’s not be pushed by a false deadline.”
Davis appeared hopeful that he could move on – for now – without Republican support if the utility companies agree to the conditions in the rescue plan. Democratic leaders have said they could craft a bill that could win approval for much of the program with majority votes, making Republican support unnecessary.
Meanwhile Thursday, the state Public Utilities Commission gave PG&E permission to offer special payment guarantees to natural gas sellers for an extra 90 days. PG&E will use the extension to try to nail down enough supplies to keep gas deliveries flowing despite fears of a possible bankruptcy.