Utility urges lawmakers to head off bankruptcy

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The San Francisco Chronicle

Although lawmakers are skeptical of the state’s multibillion-dollar deal to acquire the power lines of Southern California Edison, the head of the utility’s parent company warned yesterday that failure to approve the accord could lead to a long and costly bankruptcy.

But John Bryson, chief executive of Edison International, told The Chronicle that he thought legislators would “want to do the right thing” by approving the multibillion-dollar agreement and preventing Edison from following Pacific Gas and Electric Co. into bankruptcy court.

Bankruptcy for California’s two largest utilities could have severe consequences for consumers. Financial analysts said a worsening of the state’s energy mess would increase the possibility of higher electricity rates.

Nevertheless, lawmakers are unlikely to accept the Edison deal — at least not in its present form.

“We are going to go through this thing extensively,” said state Senate President Pro Tem John Burton, D-San Francisco. “There are a lot of concerns about the valuation.”

Still, he said, legislative backing for the accord remains possible as long as Edison is open to amending some of the terms.

“The Edison people are smart enough to know that the Legislature is going to have its say,” Burton said.

Indeed, sources familiar with the matter said Edison expected a certain amount of tinkering with the deal and would not resist efforts to reach common ground with lawmakers.

“The Assembly members do not view bankruptcy as a favorable alternative,” said Assemblyman Herb Wesson, D-Los Angeles. “There will be a big effort to try and work something out.”

Edison‘s Bryson seems eager at this point to present himself and his company as reasonable business partners who are willing to negotiate in good faith.

This contrasts sharply with the state’s relations with PG&E, which turned acrimonious after PG&E blindsided the governor with its bankruptcy filing. Each side blamed the other for the collapse of earlier negotiations.

“We made the decision at an early stage that this was a massive problem for the state and that the best course was to find a practical solution that would allow us to get on with operating our power system,” Bryson said.

Bankruptcy, he said, “is absolutely a last resort. It’s a long and costly process.”

It is also the last thing Wall Street wants to see. On Wednesday, rating agency Fitch Inc. joined Standard & Poor’s and Moody’s Investor Service in warning that California’s credit rating could be lowered because of the state’s energy mess.

“The state may be forced to issue junk bonds,” said Carol Coale, an energy-industry analyst at Prudential Securities in New York. “This could lead to a surcharge on electricity bills to guarantee the bonds.”

Bryson, not surprisingly, defended Edison‘s agreement with the governor as a prudent alternative to bankruptcy.

“This is a very good deal for the state,” he said. “It is not a bailout. Edison gives up a lot to make all this possible.”

Southern California Edison will sell its power lines to the state for $2.8 billion. It also will provide low-cost power to California for 10 years and drop a federal lawsuit seeking full recovery of nearly $5 billion in past debt.

Critics say the state is paying far too much for Edison‘s transmission system — more than two times book value — and that the power lines are of little use unless PG&E‘s grid also can be acquired.

“It’s a multibillion-dollar ratepayer bailout of Edison,” said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “Edison gets off scot-free.”

Under the most likely scenario, lawmakers will seek to reduce the amount paid for Edison‘s power lines and to increase the role of the California Public Utilities Commission in regulating the utility.

They also will try to come up with a workable contingency plan for the state if PG&E remains adamant in its refusal to sell off its part of the power grid.

“The deal on the table is still salvageable,” said Michael Shames, executive director of the Utility Consumers’ Action Network in San Diego. “But Edison needs to understand that what it got from the governor is only a framework, not set in stone.”

For his part, Bryson signaled that plenty of room existed for give and take on the issue.

“We’re just at the initial stage,” he said. “We always have accepted the notion that Edison is a California regulated utility and is subject to the laws of the Public Utilities Commission.”

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