Plan to Stabilize Utilities Is Outlined in California

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The New York Times

Gov. Gray Davis sketched the broad outlines today of a multibillion-dollar plan to stabilize California’s nearly bankrupt electric utilities by buying their transmission lines and letting the utilities set aside part of consumers’ monthly payments to finance bonds to pay the rest of their debts.

Mr. Davis revealed the long-awaited plan as the state endured its 32nd straight day of a power emergency.

The plan used ideas that have been discussed for weeks and appeared to have enough support in the Democratic-controlled State Legislature to pass.

But the governor, also a Democrat, did not put a price on the plan or offer many details, which must be negotiated with the Pacific Gas and Electric Company, Southern California Edison and San Diego Gas and Electric.

Mr. Davis said he hoped to avoid rate increases beyond those already passed or planned.

Republican legislators and liberal consumer groups, however, called that unrealistic.

Moreover, the utilities are facing intense pressure from creditors, who might yet force them into bankruptcy proceedings if the state does not move quickly to approve a plan.

“The proposal I am making today is a balanced business transaction,” Mr. Davis said at a news conference in Sacramento.

“It provides real value for ratepayers,” he said, “while allowing the utilities to go back in business and keep the lights on.”

He added, “I hope and believe that this takes bankruptcy off the table.”

In a move apparently intended to head off threats by consumer groups to try to undo the plan by proposing a statewide ballot initiative next year, Mr. Davis would require the utilities to drop federal lawsuits seeking bigger immediate rate increases, and would incorporate that action into a court settlement.

Courts have held that federal judicial settlements cannot be overturned by state laws.

“That’s maybe the biggest insult to the voters of this state,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, a consumer group.

Mr. Rosenfield’s group supports a state takeover of transmission lines but is concerned that officials will pay too much for them in the crisis.

“The question for the ratepayers is, ‘Am I going to be paying more next year than this year?’ ” Mr. Rosenfield added. “And that’s certain.”

A 9 percent increase in residential rates was imposed last month, and a further 10 percent increase is likely next year when a previous rate reduction will expire.

Assemblyman John Campbell, who was designated to speak for the Republican caucus, called Mr. Davis’s proposal “complete capitulation.”

“There’s no way this can take place without massive rate hikes,” Mr. Campbell added.

Utility executives, who met with Mr. Davis before his announcement had no immediate comment, though they had raised concerns about such proposals. But Mr. Davis said he believed that they were generally open to his proposals.

Edison and Pacific Gas and Electric say they have run up $13 billion in debts in recent months, as soaring wholesale electricity prices have left them unable to pay their suppliers, in part because the state deregulated wholesale prices in 1996 but capped retail rates.

Since early January, the state has spent nearly $2 billion buying electricity for the utilities, which have been shut out of the market, to try to avoid rolling blackouts like those that disrupted service in parts of the state for two days last month.

Two weeks ago, Mr. Davis signed a law allowing the state to sell $10 billion in bonds to help finance purchases of electricity at lower prices under long-term contracts.

That move was viewed as a first step toward stabilizing the market. Today’s announcement is aimed at solving the more complex problem of the utilities’ accumulated debt.

Under the plan, the state would sell bonds to finance the purchases of thousands of miles of high-voltage transmission lines owned by the three utilities, accounting for about 60 percent of the state’s power grid. The rest of the grid is controlled by municipal utilities and the federal government.

Edison, a unit of Edison International, and Pacific Gas and Electric, a unit of the PG&E Corporation, together value the lines in their books at $3 billion, and some legislators have suggested that the state could pay twice that amount without a rate increase, recouping the cost by charging power wholesalers for transmitting their electricity.

Because that might not generate enough to pay the utilities’ debts, the state would also let the utilities sell bonds, guaranteed by a dedicated portion of the revenue stream from customers.

Mr. Davis said he would also insist that the utilities’ parent companies, which reaped windfalls from the subsidiaries before the crisis, make “a significant contribution” toward paying the utilities’ debts.

Mr. Davis would also require the utilities to grant the state conservation easements on land they own in environmentally sensitive areas in the Sierra Nevada watershed.

Robert M. Hertzberg, the Assembly speaker, expressed support for the outline of Mr. Davis’s plan and said the Legislature would move quickly to enact the parts it must approve, though he noted that only the governor could negotiate many details.

“We understand that time is of the essence,” Mr. Hertzberg said in a telephone interview, “and we will pass a bill that supports the necessary framework. A lot of the elements don’t require our approval.”

Also today, President Bush, acting on a request from Mr. Davis, ordered all relevant federal agencies to expedite approval of federal permits for “siting and operating power plants in California.”

Mr. Davis ordered state agencies to adopt similar policies last week, and a White House spokesman at first characterized his request as seeking to relax environmental protections on existing plants.

But state officials said that was not their intent, and Mr. Bush said today that all actions should be consistent with law and “ensure continued protection of public health and environment.”

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