Utilities not thrilled with Davis’ energy plan

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Sacramento Bee

Gov. Gray Davis unveiled a multibillion-dollar plan Friday that he claims will rescue debt-ridden utilities with little or no rate increase, but the long-awaited proposal wasn’t immediately embraced by either the Legislature or utility executives.

The goal is to help Southern California Edison and Pacific Gas & Electric Co. avoid bankruptcy and recover up to $13 billion in losses while extracting valuable assets for the state in return. The concept has sparked “aggressive” negotiations, Davis said.

Top officials of the troubled utilities met separately with Davis on Friday to hear details of the proposal. PG&E immediately criticized it as unacceptable and “unfair to shareholders,” while Edison declined comment.

“We are asking the state to simply follow the law, which allows us to recover wholesale power costs incurred for our customers,” PG&E said in a prepared statement. “Any solution must be fair both to shareholders and ratepayers. The governor’s framework does not meet that objective.”

Davis declined to discuss how much money his plan would give the utilities or how much of their multibillion-dollar losses would be borne by shareholders.

The proposal calls for the state to provide a massive cash infusion by buying the utilities’ valuable, revenue-producing transmission lines and by authorizing a portion of existing rates to be used for repaying billions in private bonds that would be sold by PG&E and Edison.

In return, the utilities would drop all lawsuits against the state, provide public easements for 165,000 acres of environmentally sensitive land, get their parent companies to bear some debt-reduction burden, and agree to sell power from their existing California generators in California for 10 years at bargain rates.

“This is a balanced business transaction providing value both for the ratepayers and the utilities,” Davis said of his plan.

“It’s not fair to say, ‘We’re out of money, bail us out.’ We want shared pain and a contribution by all parties.”

Assembly sources familiar with the governor’s rescue proposal said its potential for sparking an additional rate increase depends partly on negotiations by the state to obtain inexpensive, long-term electricity contracts and to secure better rates for alternative energy such as wind or solar.

Under a worst-case scenario, the rescue plan would lead to monthly rate increases of $2.50 to $5 per household within the two districts, sources said.

No specific price for the 32,000 miles of utility transmission lines has been negotiated, but the Assembly’s Democratic Caucus has used a figure of about $7 billion – more than twice the book value – for discussion purposes.

The governor declined Friday to discuss two key issues: How much burden the utilities’ shareholders would bear in reducing the multibillion-dollar losses and whether generators would be asked to forgive some of the debt.

For the utilities, there are several reasons for caution or opposition: They believe they are legally entitled to recover from ratepayers the billions lost when wholesale prices skyrocketed and the state balked at rate hikes.

Also, the two utilities have expressed reservations about giving up transmission lines that could produce revenue for decades to come. PG&E has consistently rejected the concept, while Edison has not closed the door.

Another major utility, San Diego Gas & Electric Co., also has been discussing the concept with Davis.

Douglas Heller, of the Foundation for Taxpayer and Consumer Rights, slammed the rescue plan as a “utility bailout.”

“We’re very concerned this (rescue) would come at an extreme and unnecessarily high price,” Heller said. “It would buy assets at much more than they’re worth.”

But Lenny Goldberg of The Utility Reform Network was less critical, saying that obtaining land easements and transmission lines make sense. Key rate and other issues remain unresolved, he said.

“The framework is workable, but there are a lot of questions,” Goldberg said.

While Assembly Democrats voted Thursday night to support the governor’s proposal, Senate Democratic leaders were non-committal, saying they need to see more details.

“I didn’t hear anything that caused me to reach for my Rolaids,” said Sen. Debra Bowen, D-Marina Del Rey, who chairs the Senate energy committee. “It seems in line with the nature of the discussions that have been taking place. And it puts all the pieces together for the first time – and I think that’s good.”

Republican legislators say they largely have been left in the dark by Davis.

“Gov. Davis has effectively slammed the door on the face of the 10 million Californians represented by Republicans,” said Assemblyman John Campbell, R-Irvine.

Assembly Speaker Robert M. Hertzberg, D-Van Nuys, said the state can’t continue to live under the threat of rolling blackouts.

“The state purchase of transmission lines – at the right price and under the right terms – and the other elements of the governor’s plan will restore a measure of control to a system that is out of control,” he said.

Jan Smutny-Jones of the Independent Energy Producers, a wholesalers’ group, said time is running out on a solution to the utilities’ problems.

“It’s got to be fixed within the next week,” he said.

Edison and PG&E already have defaulted on hundreds of millions worth of bills to bondholders and wholesale generators. They face another $1 billion or so in payments by early March.

“Bondholders and generators need to know specifically whether they’re going to be paid,” said Gary Ackerman of the Western Power Trading Forum, an association of wholesalers.

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