Governor Readies Utility Blueprint

Published on

Parent firms would help defray price increases

The San Francisco Chronicle

Gov. Gray Davis is expected to unveil a rescue plan today for California’s near-bankrupt utilities that includes buying their transmission lines and putting their parent corporations on the hook for some of their $12.7 billion debt.

But a draft proposal obtained by The Chronicle leaves several multibillion-dollar questions unresolved. Among them is how much the state will pay for the thousands of miles of wires and transformers that zap electricity around the state.

“It’s a very well-balanced proposal,” said Assemblyman Fred Keeley, D-Boulder Creek (Santa Cruz County) and a chief negotiator on energy issues. “It balances the interests of ratepayers with the need to restore creditworthiness of the utilities.”

As of last night, Davis had not won needed support from legislative leaders, even though the Democratic governor is scheduled to announce the proposal today at a news conference. The plan is then to be presented to the utilities for further negotiations.

While representatives of PG&E and Edison declined to comment, consumer groups reacted harshly to Davis’ plan, saying it does not protect low-income households from potential rate increases.

“It’s a bailout and beyond,” said Doug Heller, an advocate for the Foundation for Taxpayer and Consumer Rights.

The centerpiece of the plan is state purchase of the 32,000 miles of high-voltage transmission lines. The system would be leased back to the utilities to operate.

Davis’ proposal wants the state to pay market value, a price that could range from $3 billion to $9 billion. But his plan also wants to bail out the utilities without charging customers more for electricity.

If the state pays more than $7.25 billion for the grid, experts say, the fees charged to use it would rise — a cost that is passed to ratepayers.


Cash from the sale of the transmission lines must be used by the utilities to retire some of their debt, Davis’ plan says.

The benefit of the plan for Pacific Gas and Electric Co. and Southern California Edison Co. is that it gives them the authority to use 20-year bonds to pay off the remainder of their debt.

Money to pay off the bonds would be carved out of the difference between the cost of providing energy and the sale price to customers.

For example, if the cost of electricity is 5 cents a kilowatt and PG&E can sell it at 7 cents — the 2-cent difference would go to pay off the bonds.

The plan relies on the assumption that electricity costs can be lowered in the future.

Acquiring the power grid is one of the rewards the state gets for giving the utilities the power to issue the bonds, but the utilities would also have to agree to other conditions.

One of them is dropping all pending lawsuits that could lead to rate increases.

Another is agreeing to prevent logging or development on some of the 88,000 acres of land surrounding the utilities’ dams, reservoirs and power plants.


The biggest concession for the utilities is a 10-year requirement that they sell the power they generate at cost — far below the high prices of the volatile daily spot market.

The idea is that by keeping the cost of electricity as low as possible, rate increases will be prevented.

But lawmakers have said that even if all parts of the plan break the right way, PG&E customers will see a rate increase. It’s not known how much.

Davis’ plan would also have the parent companies of PG&E and Edison share in erasing the debt amassed over the past year or so after the two companies bought electricity at high prices but were prevented from passing those costs on to their customers.

The governor wants refunds the parent companies receive for the 2000 tax year to be sent back to the two utilities — a windfall that could pump $800 million to $1.3 billion into the two cash-starved utilities.


For the 2000 tax year, PG&E expects a $500 million to $1 billion refund because of its huge losses and debt.

In 2000, Edison‘s parent received a $291 million tax windfall from its utility in a legal tax maneuver.

It is not known whether the bans on logging or developing watershed and other lands near hydroelectric facilities will remain in the plan Davis presents today.

The plan falls midway between what the utilities want — unfettered control of their property — and what environmentalists want — outright purchase of the lands.

“You’re talking about tens of thousands of acres of rivers, streams and ancient forests,” said Charlie Casey of Friends of the River. “This is stuff with real value. It is truly a once-in-a-lifetime opportunity.”

Meanwhile, yesterday, Republicans again blasted state purchase of the power grid.

Assembly Minority Leader Bill Campbell, R-Villa Park (Orange County), termed the transmission grid purchase a “bailout.”

Senate Republicans also opposed legislation authorizing the purchase of the lines and creating a state power authority.

The measure allows a new government agency to issue up to $5 billion in bonds to build power plants to increase the energy supply during critical months.


Lawmakers think building power plants for use during peak periods like the summer will reduce costs.

Private power generators, many based in Texas, demand high prices for this risky spot market. Lawmakers think a nonprofit government authority to provide power during peak times could get a better price for consumers.

The legislation, by Senate President Pro Tem John Burton, D-San Francisco, is expected to be heard next week in the full Senate and then passed along to the Assembly. Republicans voted against the legislation yesterday, saying it looks too much like a bailout of the utilities without knowing exactly what kind of debt they have accumulated.

But if the Democratic majorities in the Assembly and Senate back Davis’ plan, it can pass on majority votes — making Republican opposition meaningless.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases