Democratic lawmakers and Gov. Gray Davis today will propose a plan to rescue two debt-ridden utilities by buying their transmission lines and asking ratepayers to pick up a portion 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 aimed at returning the utilities to fiscal health and delivering 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 Thursday 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 today would 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 refinance the rest of their debts with private bonds. The state also would authorize an extra charge on utility bills 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 audit by the state Public Utilities Commission 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 the utility’s parent, Edison International, is due a $500 million refund.
Also under the proposed deal, the utilities would drop their federal lawsuits against the PUC that seek massive rate increases to cover their losses.
The state also might acquire some legal rights to preserve recreational property owned by the utilities, such as campgrounds, trails and access to lakes. Conservationists have suggested such a plan because they are worried that the companies would sell the assets to relieve their financial distress.
Still to be negotiated with the utilities are precise numbers for critical pieces of the puzzle: the amount the state would pay for the transmission lines and the amount of the companies’ debt the state would allow ratepayers to foot.
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 4-year-old deregulation law. Audits of the companies’ books suggest the actual debt is about half that, while others suggest it is far lower.
In caucus Thursday evening, Assembly Democrats discussed a scenario in which the state would pay about $7 billion for the transmission lines and use other components of the governor’s plan to cover the rest of the utilities’ debt.
Santa Cruz Assemblyman Fred Keeley, a key legislative negotiator, said that while leaders hope to craft a solution within the existing rate structure, he would not rule out a rate increase for consumers.
Edison officials have said they are willing to talk about selling their portion of the transmission lines, while PG&E officials have been far more negative in their public comments.
Consumer advocates blasted the governor’s 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 policy-makers would finance the deal in such a way that Californians wouldn’t see a rate hike in the short term, but would 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.”
Heller said any idea that such a plan amounts to parent companies sharing the pain is “obscene and unacceptable,” because utility executives already have indicated a willingness to send the tax refunds back to the cash-strapped utilities.
“Selling off power plants around the world to pay their debts – that’s parent company participation,” he said. “Being accountable for their tax trickery is not.”
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.
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.
“We’ve heard the expression that we’ll give you a dollar and you’ll give us a hot dog. What I’m concerned about is we’re paying Mercedes prices and getting a broken-down hot dog cart.”
Campbell said Republicans fear the state is rushing too fast into a “bad deal.” He said that the process should be slowed 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 on Thursday, the 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 supplies to keep gas deliveries flowing despite fears of a possible bankruptcy.