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Edison's Price for its Power Grid: $6 Billion

As Gov. Gray Davis and legislators grapple with a rescue plan for California's major utilities, the top executive of Edison International indicated for the first time Wednesday that his company may be willing to give up a valuable chunk of property--its massive transmission grid—in exchange for the state's financial help.

But Edison Chairman John Bryson said the price would be high--as much as $6 billion, far more than the state apparently wants to pay.

"We value the transmission business. We think we do it well," Bryson told reporters in Sacramento. "If the state wishes to pay us fair value to get us out of some portion of that business, we would consider it."

Exactly what is "fair" will be determined in the days ahead as legislators try to patch together a plan that keeps the utilities out of bankruptcy but does not burden ratepayers with heftier bills.

The effort to keep the utilities afloat represents the second phase of the Legislature's goal of restoring order to California's dysfunctional electricity market. Last week, the governor signed a bill authorizing the sale of $10 billion in bonds to finance power purchases.

Now, Davis and the Legislature are faced with the more politically delicate task of balancing the health of the utilities with a potential backlash from consumers.

In walking that fine line, Davis and key legislators have insisted that the utilities must give if they expect to get.

Assembly Democrats earlier proposed taking hydroelectric plants, an idea that has faltered. Davis and Republicans have said they would like an equity stake in the form of warrants, or stock options, in the utilities, which remains a possibility.

But Assembly Speaker Bob Hertzberg (D-Sherman Oaks) said Wednesday that "there is . . . growing support for the transmission lines."

Senate President Pro Tem John Burton (D-San Francisco) is proposing that the state take control of the vast system of high- voltage wires that moves electricity across the state.

"[Bryson] wants $6 billion," Burton said. "We want to give $2 billion. You settle at $2.5 billion. Who knows? It is something that it is of value to the state."

Burton said public ownership of the grid would allow the state to seize from the federal government some control over pricing, and thus limit prices charged by independent power generators for electricity.

State officials believe that with the utilities saddled with $6 billion to $12.7 billion in delinquent bills, the price of the transmission grid never will be lower.

The utilities could use the money to restructure their debt. At the same time, under another proposal, the utilities would sell bonds and the state would guarantee that a small portion of the money coming in from consumers would pay off debt during a 10-year span.

Pacific Gas & Electric officials declined to discuss the transmission proposal publicly.

But utility analyst Kit Konolige of Morgan Stanley Dean Witter said the proposal to buy the transmission grid from the utilities would reduce earnings of Edison and PG&E by about 20%.

All sides seem to agree on this: Crunch time is close.

Davis, who is most responsible for negotiating any deal, has called Monday the "drop dead date" for settling the controversial questions swirling around what consumer groups and others have dubbed a utility "bailout." Davis tentatively is set to talk with Bryson and Pacific Gas & Electric Corp. chief Robert Glynn today. It will be the first conversation between them in a week.

"There has been a dialogue but it is a dialogue about having a dialogue, not about the specifics about any one proposal," a utility executive said Wednesday, speaking on the condition that he not be identified.

One of the Davis administration's key negotiators, San Francisco attorney Michael Kahn, said he does not expect that the utilities will be restored to their "full health" by the state.

"The flip side," Kahn said, "is that I don't think anyone wants the utilities to survive in a fashion that so cripples them they are unable to serve the people."

Even so, the administration raised the prospect that the utilities would be left with a credit rating of "triple B," Davis spokesman Steven Maviglio said.

"That is one of the ideas, not by any means the only idea," Maviglio said.

A "triple B" rating essentially is a step above above junk bond status, Edison executive Bob Foster said.

Such a rating would leave the utility unable to sell bonds without paying huge premiums in interest payments to investors, Foster said.

"If we're left in a crippled situation where we can't raise money, that doesn't do the consumer any good," Foster said, adding that Edison expects to be restored so it can raise money to continue to make investments in the electricity system.

During the past week, Davis has referred to a scheduled Monday hearing in Los Angeles federal court as his deadline for resolving the questions surrounding utility debts and assets--a deadline that could be difficult to meet.

U.S. District Judge Ronald S.W. Lew is presiding over a suit in which Edison, joined by PG&E, is arguing that the California Public Utilities Commission must allow it to pass on to consumers the record wholesale prices it has paid for electricity in recent months. The PUC has warned that if utilities win and the full price of power is passed on to consumers, rates could rise 70% or more.

Davis repeatedly has said he hopes to manage the crisis without raising rates more.

Public Utilities Commission attorney Harvey Y. Morris accused Edison of trying to use the lawsuit as leverage with the Legislature for a future bailout. Morris said he wants to "flush out" exactly how much money Edison owes its creditors.

Although the utility says the debt is $4.5 billion, the actual number may be closer to $2.5 billion, Morris said.

Edison attorneys are highly confident of victory. If Edison wins, the governor will recognize "that it gives [utilities] a whole lot more leverage," a utility executive said, requesting anonymity. "It would be counter to his position against rate increases."

However, lawyers involved in the case said Thursday there is no way of knowing whether the judge will issue any definitive ruling Monday.

Moreover, the urgency of the suit diminished last week when Davis signed into law a measure allows the state to sell $10 billion in bonds to finance power purchases in coming years.

Edison acknowledged the changed circumstances in papers filed this week narrowing its request for relief from the PUC-imposed retail rate caps. In its revised motion, Edison said it now is seeking permission to boost consumer rates by about 10% to pay off its multibillion-dollar debt, rather than the 70% it earlier believed was needed.

Still calling the situation urgent, Edison said that although creditors have not tried to force the utility into bankruptcy, "whether and for how long they will continue to forbear from exercising their remedies is beyond SCE's control."

"Edison has to confront the reality that the crisis was resolved" by the legislative action last week, said Michael Strumwasser, who filed a brief in case on behalf of the Utility Reform Network, a consumer group.

In other developments, half a dozen state Republican and Democratic senators held a news conference to unveil a bill designed to speed up the siting of new power plants.

Republicans have complained that excessive bureaucracy has slowed the approval of power plants in California, leading to today's supply shortage. The legislation, by Sen. Byron Sher (D-Palo Alto), is the first proposal to specifically address that issue.

Sher said that the bill should lead to quicker permitting for plants, but would not require any significant easing of environmental safeguards. One element of the bill seeks to make power plants more attractive tenants by allowing local governments to keep the property tax they pay, which now go to the state.


Times staff writers Nancy Vogel and Jenifer Warren contributed to this story.

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