10-YEAR PACT: $2.76 billion swap buys low-cost electricity

The San Francisco Chronicle

Gov. Gray Davis and Southern California Edison reached final agreement yesterday on a $2.8 billion bailout deal that includes the state taking possession of the utility’s 12,000 miles of power lines.

As part of the accord, Edison will provide low-cost power to the state for 10 years and drop a lawsuit asking for full recovery of past electricity costs.

For California, restoring Edison to financial health represents an important step toward stabilizing the state’s dysfunctional energy market.

But with Pacific Gas and Electric Co. pursuing bankruptcy protection, the state’s two largest utilities are now traveling completely different roads, and it remains to be seen what effect this will have on consumers.

Announcement of the Edison deal came just hours after PG&E‘s first bankruptcy hearing was held in a San Francisco courtroom. PG&E filed for Chapter 11 protection Friday after deciding its own bailout talks with the governor were going nowhere.

“This is a historic moment,” Davis said at a Los Angeles news conference yesterday. “This is a good deal for consumers of the state.”

PG&E PROBLEMS

However, critics said it is unclear how much things have improved without PG&E‘s participation in a statewide accord.

“It’s like buying a car with only three wheels,” said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “It doesn’t get you anywhere.”

Davis again chided PG&E for having paid out $50 million in bonuses and raises to employees before filing for bankruptcy, as reported by The Chronicle on Saturday. He called the action “arrogant and selfish.”

“But if they come back to the bargaining table, we’ll offer them the same agreement,” Davis said.

PG&E said in a statement last night that a deal with the state is positive for Edison, “given its set of facts.”

“Given our set of facts, we continue to believe that a Chapter 11 reorganization is the most feasible means to reach a solution,” it said.

The governor and Edison reached a tentative pact on the bailout deal in late February. Subsequent weeks were spent settling on the fine print.

Parallel talks with PG&E produced no results — a point that Davis repeatedly implied yesterday was the fault of the Northern California utility rather than his own negotiators.

“If you walk away from the table, nothing gets done,” the governor said. “If you stay at the table, good things do and will get done.”

The agreement still requires approval from the state Public Utilities Commission and the Legislature.

Among the terms of the Edison deal:

— The utility will receive $2.8 billion from the state in return for its transmission network. This is more than twice the network’s book value.

— Edison will provide low-cost power to California for the next 10 years. The rates have yet to be determined.

— The utility will drop a federal lawsuit that attempted to force state regulators to allow recovery of about $5 billion in power debts.

EDISON UPGRADES

Moreover, Edison will invest $3 billion into upgrading distribution lines that connect with the newly purchased transmission network. The company will retain possession of the distribution lines, which run from transmission hubs to customers’ homes.

The utility also committed to new environmental-protection measures affecting more than 21,000 acres of land near its dams.

“A negotiated, practical, comprehensive resolution is far preferable to bankruptcy,” said John Bryson, chairman of Edison International, parent of the Southern California utility.

“We have achieved a practical approach that is preferable to years of litigation,” agreed Steve Frank, Edison‘s chief executive.

Edison will issue at least $2 billion in bonds to help pay off its debts. Bondholders will be paid off by a surcharge tacked onto the bills of Edison customers. PG&E customers will be unaffected.

LEGISLATIVE SCRUTINY

“We need to find out how much of this back debt is really the responsibility of the ratepayers,” said Senate President Pro Tem John Burton, D-San Francisco.

“The devil is in the details,” he said. “We’re going to have very, very thorough hearings on it and find out how much it costs the ratepayers.”

Assemblyman Fred Keeley, D-Boulder Creek, hailed the fact that Edison has committed itself to provide power to the state at bargain-basement rates.

“Not having the whole transmission system is not as good as having the entire system,” he noted. “But it is an asset of substantial value that would be in the hands of ratepayers, and that’s positive.”

However, Heller at the Foundation for Taxpayer and Consumer Rights said any lawmaker who supports the Edison deal “is a turncoat.” If it is granted legislative approval, he threatened to undo the accord with a future ballot initiative.

“Gray Davis gave away the store,” he said. “This is a complete and unadulterated bailout of Edison.”

“It’s way too rich,” said Nettie Hoge, executive director of The Utility Reform Network in San Francisco. “It makes PG&E look like a fool for going to bankruptcy court when you can get everything you want from the governor.”

Davis said his negotiators would have preferred working at a more leisurely pace but scrambled to get the deal done as quickly as possible once PG&E filed its bankruptcy papers.

“This transaction kept people up until 5 this morning,” he said.

The agreement was approved by Edison‘s board yesterday afternoon.

SAN DIEGO NEGOTIATIONS

Davis said he hopes to begin negotiating with San Diego Gas & Electric for its power lines today, and is “very optimistic” that a second accord will be negotiated in short order.

He still has his eye on PG&E‘s transmission system, although it will be up to Bankruptcy Judge Dennis Montali to decide whether any of the utility’s assets will be placed up for sale.

“One way or another, we hope to get all three lines,” the governor said..