Edison settlement avoids bankruptcy
The San Francisco Chronicle
In a pair of actions that could reshape California’s energy strategy, state utility regulators blocked a payment plan yesterday for state power contracts they consider too costly and single-handedly crafted a route to financial recovery for Southern California Edison.
By a 4-to-1 vote that essentially repudiates Gov. Gray Davis‘ long-term power contracts, the state Public Utilities Commission refused to adopt a bond financing agreement that would guarantee payment of the $43 billion in state electricity deals.
The vote throws into question how the Davis administration will sell a $12.5 billion bond issue needed to pay back the state’s general fund for the electricity. Without the bond money, state Treasurer Phil Angelides said, the state faces a ruinous $9 billion deficit next year.
It also leaves open the question of whether generators will renegotiate the long-term contracts at a lower price — something the PUC would like to see — or sue the state for reneging on the deals.
Davis called the PUC decision an “irresponsible act.”
PUC President Loretta Lynch, Davis’ former policy adviser, said the governor had “saved the state economy” when he stepped in to buy power in January after the utilities buckled under soaring wholesale prices.
But Lynch said she could not agree to Davis’ proposal that the PUC rubber-stamp the contracts that the Davis administration signed, which she said were negotiated when generators had the state over a barrel. The end result, she said, could be sharply higher electricity rates for consumers.
“Sometimes even when the decision is difficult, you just have to do what you believe is right,” Lynch said. “I believe this rate agreement is wrong for the people of California.”
VETO OF BURTON BILL PLANNED
Lynch would like Davis to endorse an alternate financing mechanism sponsored by state Senate President Pro Tem John Burton, D-San Francisco. That measure, SB18xx, would set aside a portion of customers’ rates to pay back the bonds, leaving the long-term contracts open to renegotiation.
“It is now really the only viable option,” Burton said yesterday.
Davis, however, has said he will veto the bill, and he gave no sign yesterday that he was searching for another alternative.
Angelides said the bonds cannot be issued unless the PUC reconsiders. Without the bond money, he said, “essential programs such as education, health care and law enforcement” will be jeopardized.
Jeff Brown, the only commissioner to vote for the Davis plan, said that even if the contracts are renegotiated, the failure of the bond agreement could lead to a “catastrophic impact that may be something we will live with for generations.”
Critics of the Davis plan said the PUC had no choice but to reject it.
“By voting down the ‘blank check’ rate agreement, the PUC voted for consumer protection, for a clean, affordable energy future and against a decade of skyrocketing energy costs,” said V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies.
EDISON KEPT AFLOAT
While Davis was upset with the PUC for its vote, he had nothing but praise for a separate move by the commission that kept Southern California Edison from joining Pacific Gas and Electric Co. in bankruptcy court.
Closing a deal negotiated privately over the past three weeks, the commission unanimously agreed to settle a lawsuit filed by Edison by allowing the utility to pay off billions in debt by splitting costs between customers and shareholders.
The deal, subject to approval by a federal judge, would keep current rates in effect until 2003 — including record rate increases imposed earlier this year. Shareholders will get no dividends until at least 2004, a potential $1.2 billion loss, but customers will be on the hook for $3 billion of Edison‘s debt.
Davis promptly canceled a special legislative session he had called for next week to push his own Edison plan — a deal that had been given little chance to succeed. Key to Davis’ deal had been a proposal that the state back $2.9 billion in bonds for the utility.
“This is what happens when the people of California are sold out,” said Harvey Rosenfield, director of the Foundation for Taxpayer and Consumer Rights. “The governor got his unelected appointees to do to us what elected officials refused to do for months — stick small residences with the bill.”
Energy producers were concerned mainly with whether they would be paid. Patrick Dorinson, speaking for Mirant, said there was nothing in the settlement that guarantees his company and others will get what is owed them.
“We were asked by the governor and Edison to be patient,” he said. “This agreement appears to say that all creditors will be paid except generators.”
The deal does let the state off the hook for bailing out the utility. Burton, who had referred to Davis’ rescue plan for Edison as a “piece of s–,” said he wasn’t sure how to react.
“It is like living with a boil on your tongue — after a while it’s been there so long you miss it when it is gone,” he said.
PG&E said it would not try to get a deal similar to Edison‘s, preferring to work out its debt problems in bankruptcy court. Rather than agreeing like Edison to remain a regulated utility, PG&E is proposing to transfer its power plants and other assets into subsidiaries free of state regulation.