Davis reaches deal with Edison to buy transmission lines for $2.7 billion

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Contra Costa Times

SACRAMENTO _ Gov. Gray Davis has reached agreement with Southern California Edison for the state to buy its transmission lines for $2.7 billion, but the larger, more expensive segment of the grid sought by the governor remains elusive.

The governor is attempting to negotiate deals with Edison, PG&E and San Diego Gas & Electric to buy certain assets, including all their high voltage transmission lines, as part of a plan to resuscitate the ailing companies.

Davis announced Friday he and Edison officials have settled on a cost for Edison‘s 12,000 miles of transmission lines and other side agreements, including the company’s pledge to drop a lawsuit and sell all the power it generates at low rates for 10 years.

However, he was vague on where talks stand with Pacific Gas and Electric Co. To date, PG&E executives have scoffed at the notion of jettisoning their transmission lines.

Meanwhile, in a related development Friday, a federal court refused to reissue an order requiring three electricity generators and a trading company to sell power into California’s last-minute energy market. U.S. District Court Judge Frank Damrell said he would let the order expire today because the companies said they would continue supplying electricity for the next three weeks despite their concerns about not being paid.

News of what this week’s negotiations have brought drew a mixed reaction. Democratic lawmakers said it showed Davis is moving ahead as planned, Republicans criticized the governor for not being farther along and consumer advocates blasted the terms of the agreement outlined with Edison.

“This is a full and outrageous pardon for Southern California Edison,” said Harvey Rosenfield, president of the watchdog group Foundation for Taxpayer and Consumer Rights. “It’s completely unjustified and if the Legislature doesn’t stop it, there’s going to be hell to pay at the ballot box next year.”

Whatever the merits of the deal with Edison, others said Davis’ progress report was overblown.

“I guess I’m a little surprised that all three utilities aren’t entering into this, just Edison,” said Gary Ackerman, executive director of the Western Power Trading Forum, an industry group representing power generators and marketers. “It’s fair to say, if PG&E isn’t in it, there’s no deal. There’s a lot of details to be worked out.”

At a Los Angeles press conference, Davis hailed the agreement with Edison while cautioning that many details still must be worked out and the deal may not be sealed until the end of next week. Nevertheless, he called the development “substantial progress.”

One week ago, Davis said he hoped the details could be worked out on the plan with all three utilities by Friday. While that did not transpire, the governor put the best face on what he could tout.

“This is a real bread-and-butter benefit for the people of California,” Davis said.

As part of the agreement, Edison would take conservation easements on 20,000 acres of watershed lands it owns around hydroelectric facilities.

Also, the state would buy Edison‘s transmission lines at a price that is 2.3 times the estimated book value. In exchange, Edison‘s parent corporation, which earned billions of dollars from the utility in the three years preceding last summer’s market meltdown, would give the utility $420 million.

In addition, Edison would sell all the power it generates, 15,000 megawatts on average, to the state for a decade on a “cost-based” rate. That means regulators would set the price at a rate slightly above cost to give the utility some profit, the practice when utilities were fully regulated.

Davis said the lower rate would be approximately 10 to 15 percent what the cost of electricity is on the spot market.

Likewise, a non-regulated sister company of Edison would agree to sell the 560 megawatts generated by its new Sunrise Mission power plant, now under construction in Kern County and expected to come online this summer, at cost-based rates for 10 years.

Finally, Edison would drop its lawsuit against the Public Utilities Commission seeking to raise rates immediately to cover the cost of buying high-price wholesale electricity over the last nine months.

Consumer advocates, who favor the state buying the transmission lines, questioned the value of the deal, which they said appears overpriced.

Edison officials “are basically saying in exchange for accepting a bribe up front, they will agree not to gouge us down the line,” said Matthew Freedman, an attorney with The Utility Reform Network.

As for the expiration of the federal court order requiring generators to sell, Judge Damrell made the decision Friday afternoon after Reliant Energy, Dynegy, AES and Williams Energy Marketing and Trading Co. agreed to continue selling electricity until March 16.

Reliant officials said they hope the matter will be resolved in the meantime by the Federal Energy Regulatory Commission.

Grid managers sued the companies when they refused to promise that they would continue to supply power after a federal order that required them to do so expired on Feb. 7. The California Independent System Operator said more frequent blackouts would occur if it lost the authority to order companies to sell enough juice to keep the lights on.

But one of the companies, Reliant Energy, said it was potentially losing $2 million a day in forced transactions backed by the state’s nearly broke utilities. Reliant says those utilities already owe it $300 million.

The FERC earlier this month issued a ruling that appears to prevent the California Independent System Operator from ordering companies to sell electricity unless it has a creditworthy backer.

However, ISO officials have interpreted the order differently and have continued to issue emergency instructions for more power. Those purchases are backed by the utilities, but the companies want them to be backed by the state treasury.

Earlier this week, Reliant, Dynegy, Williams, Duke Energy and Mirant petitioned FERC to enforce the order.

“In an extraordinary display of chutzpah, the ISO has failed to take any action to comply with the Feb. 14 order,” the companies petition said. FERC spokeswoman Celeste Miller said the federal commission had not set a time when it would consider the request.

ISO spokeswoman Lorie O’Donley said the agreement reached on Friday might allow the state to secure long-term contracts for electricity and work out deals with the utilities that will allow them to pay their electricity bills owed to the generators.

“The understanding was the judge wanted to do this to give the state some more time to work on those issues that are still pending, the long-term contracts and the (unpaid bills),” O’Donley said.

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