Sacramento Bee

Gov. Gray Davis unveiled a new agreement Monday to purchase portions of the state’s electricity transmission grid, a move he considers key to solving the current crisis, but critics warned that the state may be moving too fast in the wrong direction.

Davis and officials representing San Diego Gas & Electric announced that the state tentatively has agreed to purchase the utility’s 1,800-mile system of transmission lines as part of a deal that will wipe out $750 million of ratepayer debt accumulated since last summer because of high wholesale electricity prices.

Without such a settlement, Davis said, the utility’s 1.2 million customers would have been hit with balloon payments ranging from about $400 per home to $12,000 per medium-size business.

“The balloon is burst,” he said. “Under this agreement, the undercollection is eliminated, without any increase in rates. This is a massive benefit to San Diegans.”

Davis hailed the pact as another major step in his plan to lower California’s wholesale energy costs, build new plants, encourage conservation, restore investor-owned utilities to financial stability and acquire control of the statewide transmission grid.

To help accomplish those goals, Davis has signed long-term electricity contracts – details of which were released Friday. He also has negotiated an agreement to help rescue Southern California Edison by purchasing its transmission lines for $2.76 billion and providing other financial incentives, although the plan has won little support in the Legislature so far.

The only element of the SDG&E plan requiring legislative approval is purchase of the transmission lines, officials said.

But critics warn the moves could backfire and hurt the state for years to come.

They claim the state would be paying too much and getting too little for the transmission lines, and they warn that the long-term energy contracts could lock the state into paying exorbitant rates for years if the industry stabilizes and prices drop.

“When you break it down, it’s a capitulation to the electricity industry that has gouged us,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

Assemblyman Fred Keeley, D-Boulder Creek, did not criticize the Democratic governor’s plan, but said he has convened a group of analysts, at the request of Assembly Democratic leadership, to evaluate whether each of the $43 billion in long-term contracts will serve the state’s best interest.

“This is a decision that will have a profound effect on the economy and how electricity is priced in California for the next decade,” Keeley said. “It’s worth taking a couple days to take a thoughtful, careful look.”

Potentially, the study could support the contracts or could recommend that the governor walk away from some that have not been signed and/or rescind some of the others, Keeley said.

Specifically, the experts will consider whether the contracts fit into the existing rate structure, would support a rescue plan for private utilities, and would allow creation of a “direct access” plan in which customers could contract directly with a private energy provider.

While Davis does not need legislative approval of his long-term contracts, their feasibility could increase support or opposition to his Edison rescue plan, which has generated substantial controversy and requires approval by the Assembly and Senate.

San Diego-area legislators lauded the San Diego Gas & Electric agreement announced Monday, key elements of which include:

• California would pay $1 billion for the utility’s transmission lines, representing 2.3 times their book value.
• Ratepayers would be relieved of making balloon payments whether the grid is purchased or not.
• The utility would drop its lawsuits against the state and provide low-cost power from the San Onofre nuclear plant for 10 years.
• California would have the right to buy about 16,000 acres of environmentally sensitive land along the Colorado River.
• Various contested issues would be resolved through the state Public Utilities Commission, including disposition of two power contracts totaling 250 megawatts.