The San Diego Union-Tribune

LOS ANGELES — Reaching the first of three accords needed for his power-grid takeover plan, Gov. Gray Davis announced yesterday he has a tentative agreement with Southern California Edison Co. to buy its power lines for $2.76 billion.

The deal requires Edison‘s parent company to transfer $420 million to the utility and to sell cheap power to the state for a decade.

“This entire transaction, which I believe is fair and balanced to both sides, will be accomplished within the existing rate structure,” Davis said. “We will not be asking any more of the consumers to allow this transaction to come to pass.”

He said he hoped the agreement would be final next week.

Edison issued a written statement saying approval by the company’s board is still needed.

“While we continue to believe that as a matter of law and equity we are entitled to be fully reimbursed for the cost of purchasing power on behalf of our customers, this agreement is far preferable to perhaps years of protracted litigation for our ratepayers, shareholders, creditors and employees,” said John Bryson, head of the utility’s parent company, Edison International.

Standing alone, however, the deal is of little consequence.

Pacts must also be struck with PG&E Corp., the parent of Pacific Gas and Electric Co., and Sempra Energy, the parent of San Diego Gas & Electric Co., Davis said.

He said “some progress” was made with PG&E.

“I do not believe we can make a satisfactory arrangement without 60 percent of the transmission grid, and that would require cooperation with PG&E,” Davis said.

The governor added that he was “making good progress” with Sempra and hoped a deal could be announced next week.

Sempra spokesman Michael Clark said the company had no comment on Davis’ announcement but that talks with the Governor’s Office are expected to continue.

In a statement issued before Davis’ announcement, Robert Glynn Jr., PG&E‘s chief executive officer, called a Thursday meeting with Davis a “milestone in the resolution of California’s energy crisis,” and said he was open to more negotiations.

“Each utility’s issues and opportunities in this crisis are different, and we believe that PG&E has proposed a detailed solution that balances ratepayer and shareholder interests,” Glynn said.

Davis, who travels to Washington, D.C., this weekend for a national governors conference, has portrayed the purchase of the state’s 26,000 miles of transmission lines as a pathway out of the energy crisis that has sullied California’s reputation and damaged its economy. The cost for the entire power grid is estimated at up to $7 billion.

Supporters of the purchase say it will bring financial stability to PG&E and Edison, which are both on the edge of bankruptcy. Opponents say the plan is an unnecessary bailout.

State utilities say the combination of soaring wholesale power prices and state-imposed consumer rate caps has resulted in nearly $13 billion in losses since June.

Under terms of the tentative agreement, Edison would also:

[] Commit the entire output of its Sunrise Mission power project at cost-based rates for 10 years, which Davis said would save ratepayers $500 million over two years.

[] Provide cost-based rates for 10 years for power generated at other plants it owns.

[] Drop its lawsuit against the California Public Utilities Commission. The suit claims that imposed rate caps are illegal under federal law. The state fears that if Edison prevails in court, consumer rates would rise.

The proposal would also allow Edison to issue bonds for a “substantial portion” of its losses.

Those bonds would be repaid by ratepayers, but Davis said he hopes that can be done without boosting ratepayers’ bills.

The PUC raised rates 7 percent to 15 percent for Edison and PG&E residential and business consumers in January. A 10 percent rate reduction that was part of the state’s deregulation plan will expire for Edison and PG&E customers next year.

Michael Shames, executive director of the San Diego-based Utility Consumers’ Action Network, said his organization has supported the power-line takeover. But Shames said Davis’ claim that consumers would not pay more for the takeover is incredible, adding, “We don’t see how he’s able to say that.”

Nevertheless, he said UCAN was withholding judgment on the overall plan until all numbers were provided.

Assembly Republican leader Bill Campbell also questioned Davis’ math.

“I don’t see how we can pay for the transmission lines without a rate increase,” Campbell said in a statement.

State Treasurer Philip Angelides previously calculated that the purchase of transmission lines could save money for consumers, if the deal was for anything below twice the book value of the assets. That would amount to $2.4 billion or less for Edison‘s transmission system.

Yesterday’s announced price of $2.76 billion could mean consumers will pay more for power transmission as owners of the grid than they did before, adding pressure for a rate hike or state subsidy to make up the difference.

Davis has said that owning the power lines would benefit California financially, keep electricity costs down and allow the state to make improvements to enhance power reliability.

Shames said the Edison bond payments to erase its debt undoubtedly would be covered by ratepayers.

The so-called undercollections remain controversial.

Consumer advocates oppose state help for the utilities on the debt, saying the parent companies drained billions from the utilities in recent years only to have them face bankruptcy now.

Davis said only that Edison would be allowed to recover a “substantial portion” of its claimed losses.

Angelides said allowing the utilities to collect the billions they say they have lost will significantly raise the likelihood of consumer rate hikes.

Consumer advocate Harvey Rosenfield criticized Davis’ plan, calling it a “giveaway” to a company that has gouged consumers and protected its stockholders and parent company. He called the $420 million payment from Edison International a puny contribution.

“Davis is trying to dress up an unprecedented giveaway of ratepayer money in the disguise of a buyout,” said Rosenfield, head of the Foundation for Taxpayer and Consumer Rights. “We’re going to be calling him ‘Giveaway Gray.’ Unless the Legislature stops it, there is going to be hell to pay at the ballot box next year.”

Mixed reviews arrived from Davis’ Democratic colleagues in the Legislature.

Assembly Speaker Robert Hertzberg, D-Van Nuys, praised the agreement, saying it is a signal that “clear progress is being made.”

The response from Senate President Pro Tempore John Burton, D-San Francisco, was muted.

“The Legislature awaits further details as negotiations continue,” Burton said.

Jan Smutny-Jones, executive director of the Independent Energy Producers, which represents small and large generators, said the state power-grid takeover would cost ratepayers “billions of dollars into the future” because of maintenance and liability costs.

“There is no question it generates some revenue, but it also has costs,” he said. “We do not believe this is going to be a big moneymaker for the state.”