Governor strikes a deal to erase San Diego Gas & Electric’s debt

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The San Francisco Chronicle

Gov. Gray Davis announced a deal with San Diego Gas & Electric yesterday that will eliminate the utility’s past debt without rate increases and give the state the option to purchase its transmission lines.

San Diego residents experienced rate shock last summer when the full effect of the state’s flawed deregulation plan kicked in. A freeze on retail rates was lifted and consumer prices skyrocketed. While legislation stopped the spikes temporarily, it left a growing debt that the company accumulated until the state started purchasing power.

The deal reached yesterday erases a $747 million debt owed by ratepayers to the utility through writeoffs, restructuring of debt and regulatory adjustments.

“In tangible terms, what does this mean? It means the average ratepayer in San Diego will not have to make a $400 contribution to this balloon payment,” Davis said. “This is a huge relief for the people of San Diego and a large burden lifted from their shoulders.”

The plan to erase the back debt will take place through Public Utilities Commission action and will not need legislative approval. However, any purchase of the transmission lines would need approval by lawmakers.

The deal is similar to one reached between Davis and Southern California Edison in February, but the purchase of the transmission lines is not tied to SDG&E‘s recovery of past debt. The Edison agreement has stalled in the legislature, with several lawmakers now convinced that purchasing the lines is a bad deal for the state.

The Edison agreement has its first informational hearing today. The plan is supposed to be approved by Aug. 15.

Legislation would be required for the state to purchase San Diego’s 1,800 miles of transmission lines for about $1 billion, or 2.3 times the book value.

Consumer groups argue that paying over book value is a raw deal for ratepayers.

“They are using a buyout to sneak in a bailout,” said Doug Heller, an advocate with the Foundation for Taxpayer and Consumer Rights.

Republicans object to the lack of oversight by the Legislature.

“Why don’t they welcome legislative scrutiny,” said Jamie Fisfis, a spokesman for Assembly Republican Leader Dave Cox. “It makes me wonder what is really in those settlements.”

Stephen Baum, president of Sempra Energy, San Diego’s parent company, said the plan brings stability back to the utility. “This is a way to solve the undercollection quickly,” he said.

Under the plan, the state will continue to purchase power for San Diego residents through the end of 2002. While San Diego ratepayers will not see a rate increase to pay for the back debt, they do face an increase to cover power purchases being made by the state.

The utility’s debt will be erased through a series of settlements with the company. For example, a claim of overcharging by the PUC‘s Office of Ratepayers’ Advocate will be settled under terms favorable to the utility.

Other provisions in the San Diego deal include the company providing cheap electricity from power plants it owns — about 440 megawatts from the San Onofre Nuclear Generating Station, 250 megawatts from contracts with alternative power providers and some smaller contracts.

The state also will get first rights to buy 16,000 acres of conservation land along the Colorado River, south of the city of Blythe, and the company will drop all legal claims against the state.


The deal at a glance

  • Back debt: A $747 million balloon payment looming for ratepayers has been eliminated through write-offs and extending the debt over several years.
  • Transmission lines: The state has the option to buy the transmission lines for about $1 billion, 2.3 times the estimated book value.
  • Power: San Diego will sell the state cheap power from its nuclear plant for 10 years.
  • Land purchase: The state has the option to purchase about 16,000 acres of environmentally sensitive land owned by the company along the Colorado River.

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