Plan Won’t Raise Rates, Davis Says

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Governor seeks to assure Senate, where Democrats say action is a bailout of nearly bankrupt utility.

Los Angeles Times

Gov. Gray Davis sought to assure the state Senate on Tuesday that his plan to save Southern California Edison from threatened financial collapse would work without increasing customer rates.

Davis sent assurances to the Senate Energy Committee through his top attorney, Barry Goode, who helped negotiate the controversial proposal with the utility.

Senate Republicans have taken a wait-and-see attitude on the plan. But they generally contend that the business of utilities belongs in the hands of private enterprise.

But Democrats in both houses have charged that the deal between Democrat Davis and Edison represents a state bailout of the nearly bankrupt Rosemead-based utility. The analysis is shared by leading consumer activists.

At the first in a series of Senate hearings on the package, which is considered all but dead in its current form, Sen. Byron Sher (D-Palo Alto) voiced concerns about political problems with the plan.

He asked Goode, who was flanked at a witness table by Edison executives, whether monthly bills of the utility’s customers would increase as a consequence of approval of the governor’s package.

“Our models say there will be no additional impact on the ratepayers,” Goode replied.

Other members appeared ready to pursue rate increase questions, but Chairwoman Debra Bowen (D-Marina del Rey) cut them short. She said the issue would be fully examined at a later hearing.

To spare Edison from going into bankruptcy and to restore its credit-worthiness, Davis and executives of the utility reached a complex compromise in April, the centerpiece of which was a state purchase of Edison‘s transmission grid for about $2.8 billion, more than twice its book value.

Edison has estimated that it owes $3.5 billion to creditors, including wholesale power generators, as a result of deregulation of retail electricity prices in 1996.

Because of a freeze in retail rates, Edison was prohibited from passing its energy costs to customers.

Other features of the deal include dedicating a portion of consumer rates to help pay off the debt, a guaranteed 11.6% rate of return to Edison on its sales and investments, and termination of an ongoing Public Utilities Commission investigation into financial dealings of Edison‘s parent company, Edison International.

The energy committee held the hearing for fact-finding purposes and did not consider the Edison bill, SB 78x by Sen. Richard Polanco (D-Los Angeles).

But the Davis-Edison deal has angered consumer activists, who contended that bankruptcy for Edison would be preferable.

They deplored it as a bailout that would cost Edison customers $5 billion to $7 billion.

“If the Legislature makes the mistake of forcing the ratepayers of California to pay one more penny to bail out these companies, we will put [an initiative] right on the ballot,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

Consumer organizations in 1998 put to the voters an initiative to junk the 1996 deregulation law. The measure failed.

Rosenfield, Harry Snyder of Consumers Union and Matt Freedman of the Utility Reform Network all asserted at a news conference that the Davis rescue program should be killed.

Snyder, who opposed deregulation, said the governor’s bill is shaping up as a replay of 1996.

“It’s too big, too complicated. . . . This is the same process that brought about this [deregulation] disaster,” Snyder said.

Separately, San Diego Gas & Electric agreed Monday to sell its transmission grid to the state for about $1 billion on the same terms as Edison.

With all the controversy surrounding the Edison deal, the chance of SDG&E winning legislative approval of its sale is slightly better than 50%, said Stephen L. Baum, chief executive of Sempra Energy, parent of SDG&E.

“I think there’s a widely shared view in the Legislature that they don’t want the state in the long-term business of power procurement. . . . In order to get Edison back into that business there has to be this infusion of capital” to pay off past electricity debts and make the utility credit-worthy, Baum said.

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