The New York Times
Gov. Gray Davis announced today that he had signed an agreement with Southern California Edison, the state’s second-largest utility, that is intended to restore the troubled utility to financial health.
For months the governor has been negotiating with the state’s three largest utilities to buy their transmission lines, giving them much-needed cash to help pay off the more than $12 billion in debt they have incurred since electricity prices began soaring last May. Under a deregulation plan put in place three years ago, the utilities have not been able to pass along the rising wholesale costs of electricity to retail consumers.
Many analysts thought a deal with Southern California Edison was thwarted on Friday when California’s largest investor-owned utility, the Pacific Gas and Electric Company, filed for bankruptcy protection, saying the state had not moved quickly enough to come up with a plan to restore it to solvency. The bankruptcy filing came one day after Mr. Davis reversed his stand on raising retail rates, something the utility had been requesting for months.
Negotiators worked quickly over the weekend to firm up the details of the plan with Southern California Edison, including not only the sale of the transmission lines for $2.76 billion, but also a refund of $400 million to the utility from its parent company, Edison International. As outlined in a speech on Thursday, when the governor detailed his energy policy, the utility will provide low-cost power to the state for 10 years and dismiss lawsuits against state regulators.
In his announcement of the deal, Governor Davis, a Democrat, said in a clear reference to Pacific Gas and Electric, “This is a clear example of the good that can come when parties are responsible, resolute and remain at the bargaining table.”
He also took the opportunity to chide the company for handing out $50 million in bonuses and merit raises to employees the day before it filed for bankruptcy, saying, “I think it is inappropriate to be padding your pockets as you are diving into bankruptcy.”
John Bryson, the chairman of Edison International, said he was “cautiously optimistic” that the deal would be completed.
“The agreement is a challenging one for us,” Mr. Bryson said, “but we can implement it. We need to pull together, not pull apart.”
Mr. Bryson said the utility could begin paying the more than $5 billion it owes power generators once the deal was put into effect. But company executives said that did not solve the problem of high wholesale prices and that blackouts could still occur this summer.
The state and the utility will need to negotiate the specific terms of the 40-page Memorandum of Understanding between them, which was approved by the Edison International board this morning. Certain parts of the agreement need to be approved by both the Legislature and California’s Public Utilities Commission. Those parts were not disclosed today.
Analysts say that while such an agreement is a step in the right direction, it will not solve California’s energy woes. Wall Street reacted favorably to the news, with share prices for Edison International rising as much as 35 percent in after-hours trading. But consumer activists, who have been critical of both the governor and the utilities, were less sanguine about the solution the two parties proposed.
“I don’t think the public can stomach any of these folks,” said Doug Heller, a consumer activist at the Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif. “In the wake of the bankruptcy of Pacific Gas and Electric, our panic-stricken governor has sweetened the deal because he fears two bankruptcies on his watch.”
The deal with Southern California Edison included other elements as well. Edison International has also agreed to grant perpetual conservation easements on 21,425 acres it owns. The company will also invest $3 billion in capital improvements over five years. Governor Davis said he would be willing to discuss a similar offer with Pacific Gas and Electric.
In an interview today, Robert D. Glynn Jr., chairman of the PG&E Corporation, the parent of Pacific Gas and Electric, said that he had not seen the agreement between Southern California Edison and the governor’s office, but that he would be willing to adopt parts of it if it made sense for his utility.
“If there was a settlement that made good sense for all parties, it could be filed in the reorganization plan,” Mr. Glynn said.
But he pointed out that his company, too, would be presenting a plan of reorganization that would include a retail rate increase that would allow the company to be paid for the electricity it had already bought on behalf of consumers.
“We are not asking for help or a bailout,” Mr. Glynn said. “We’re asking them to follow the law.”