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
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
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
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
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.