Davis offers way to rescue state utilities

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Republicans and consumer advocates assail the plan, saying it invites higher retail rates in the future.


California’s collapsing electric utilities would “go back in business and keep the lights on” under a rescue plan Gov. Davis

proposed Friday.

The Democratic governor demanded several concessions from the state’s three privately owned electric utilities and their

parent companies, ranging from transmission lines to agreements to preserve scenic lands.

But Davis faced sharp criticism from Republicans and consumer

activists for opening the door to further retail rate hikes.

Davis said the state can restore the utilities’ creditworthiness

and continue buying a third of their customers’ power by

borrowing money that would be paid back over 10 years with a

portion of consumers’ monthly payments.

He labeled as “not accurate” reports that he was proposing rate


“It is my plan that all of this can be done within the existing

rate structure,” Davis said.

But a key issue is whether the 10-percent rate reductions that

the state’s electric-deregulation law put into effect a few

years ago will cease, as scheduled, in March 2002.

If the law isn’t changed, and last month’s 9-percent residential

rate hikes become permanent, ratepayers would pay 10 percent

more next year.

“We think we’ve already had the 10-percent rate increase that

(Davis and his aides) are saying is coming,” said Lenny

Goldberg, a lobbyist for the Utility Reform Network, a consumer


“That additional 10 percent is a very major concern for us.”

Davis seemed to concede that the state will have to be lucky to

avoid rate hikes.

“This is like threading a needle,” he said. To avoid rate hikes,

“we have to make good agreements with the utilities, we have to

bring down the (price of alternative-energy) contracts . . . and

we have to continue to negotiate long-term contracts” at

favorable prices.

Friday morning, Davis and his aides began negotiating the terms

of his “recovery plan” with executives of Southern California

Edison, Pacific Gas & Electric and San Diego Gas & Electric.

“We want shared pain, contributions from all parties,” Davis


A state purchase of the three utilities’ transmission lines

could be financed using current transmission fees that power

generators pay the utilities, and wouldn’t require any of

consumers’ monthly payments, said Davis communications director Phil Trounstine.

Two of the three utilities were “open to that idea” of a sale,

Davis said. PG&E has expressed the most opposition to giving up

its towers and high-voltage lines.

Assemblyman Fred Keeley, D-Boulder Creek, said the state could

pay $ 7 billion for the power lines; Davis would say only that

talks would start at their book value, which the state Public

Utilities Commission pegs at a total of $ 3.8 billion for all


Davis also demanded that the utilities keep their remaining

power plants and sell the power from such plants to customers at

low rates for 10 years; give up the rights to cut timber or

develop land along their hydroelectric reservoirs in the Sierra

Nevada; drop suits seeking to raise rates; and receive “a

substantial contribution” from their parent companies.

Assembly Speaker Robert Hertzberg, D-Van Nuys, said Davis’ plan

“will restore a measure of control to a system that is out of


But Doug Heller, of the Santa Monica-based Foundation for

Taxpayer and Consumer Rights criticized the plan as vague and a

sure path to “a bailout” of utilities.

Inland Republican lawmakers slammed the proposal.

“We are not convinced that the state has to put a penny of the

taxpayers’ or the ratepayers’ money into the utilities,” said

Senate Republican Leader Jim Brulte of Rancho Cucamonga.

He noted that under the 1996 law billions of dollars have been

transferred from consumers to the utilities. The money was

supposed to offset the utilities’ losses on uneconomical

investments and get them ready to compete in the deregulated

marketplace, Brulte said.

But the extra money wasn’t necessary because the utilities sold

plants at much higher prices than expected and their nuclear

power plants and long-term agreements with alternative energy

sources are no longer the burden they once seemed, Brulte said.

Assemblyman Bill Leonard, R-San Bernardino, circulated a memo to colleagues Friday that said the utilities’ “true debt” may be

only $ 500 million, not the $ 13 billion the utilities claim they

have lost due to soaring wholesale prices they can’t pass on to


Davis’ proposed state purchase of transmission lines and

conservation easements on utility land near waterways is “a bad

plan,” Leonard said in an interview.

“It bails out the utilities in a way that will result in rate

increases, in a way that . . . will divert the state’s surplus

away . . . from schools and away from highways,” Leonard said.

The state’s ownership of the grid and of conservation easements

near hydroelectric dams will lead to inflated operating costs

and much mischief, predicted Assemblyman Dennis Hollingsworth, R-Murrieta.

Consumer Watchdog
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