Options Debated in Edison Rescue

Energy: Legislature is still sharply split over Davis' plan. Some want to let the utility fall into bankruptcy.

Assembly speaker Bob Hertzberg (AP) Quote

"The fact of the matter is that we just have to act." -- Bob Hertzberg, Assembly speaker

By MIGUEL BUSTILLO and NANCY VOGEL, Times Staff Writers

SACRAMENTO -- A week before its annual summer recess, the California Legislature remains deeply divided over Gov. Gray Davis' plan to rescue Southern California Edison from financial ruin--and a growing number of lawmakers are proposing to let the state's second largest utility fall into bankruptcy.

Convinced that Davis' plan is political suicide, leading Democrats in the Assembly and Senate on Thursday advanced slimmed-down alternatives to save Edison.

"The fact of the matter is that we just have to act," said Assembly Speaker Bob Hertzberg (D-Sherman Oaks), who introduced an alternative plan to rescue Edison Thursday afternoon and scheduled hearings on it throughout the weekend.

At issue are competing priorities with important ramifications. Advocates of the rescue say it is needed to keep the utility solvent and prevent California from descending further into its long-running energy crisis. Critics say it is politically impossible to sell a bailout for the utility and argue that bankruptcy may be a better solution.

In recent days, those critics have appeared to be gaining ground. Lawmakers conceded Thursday that none of the counterproposals to Davis' bailout plan appears to have sufficient support to clear both houses--and none has the blessing of the utility, which contends that only the original Davis version would make it credit-worthy.

In fact, some lawmakers and lobbyists working on the Edison deal contend the sudden legislative push is a political exercise designed to deflect criticism and provide cover in case the company goes under.

California is spending billions to buy about a third of the electricity needed to serve the state because its two largest utilities, Edison and Pacific Gas & Electric, are too burdened with debt to do so. That dilemma can end only when the utilities are able to resume their role as procurers of power.

PG&E opted to take itself into Bankruptcy Court in April rather than wait for a political solution to its financial problem, but Edison reached a sweeping deal with Davis later that month. That plan has languished in the Legislature ever since.

The agreement calls for California to purchase Edison's power transmission grid for $2.76 billion. In turn, the company would use the money to retire some of the $3.5 billion in debt it racked up between May 2000 and January 2001, when it bought billions of dollars' worth of electricity in the wholesale power market but could not recover those costs from customers protected by a state utility rate freeze.

As a result of the state assistance, Edison would resume buying electricity for the 11 million people it serves in January 2003. If the Legislature does not approve the deal, Davis argues, the state will be left in the business of buying that power for far longer.

But angry consumer groups are threatening to derail any rescue deal with an initiative campaign, calling such proposals massive government bailouts. And some leery lawmakers are convinced that Bankruptcy Court would provide a better forum for resolving Edison's unwieldy problem.

"Tell me why bankruptcy is any worse than any other proposal," said state Sen. Mike Machado (D-Linden), echoing a view he said was shared by many of his colleagues.

"PG&E," he added, "seems to be doing quite well."

In recent weeks, said state Sen. Ross Johnson (R-Irvine), he has received a series of letters from constituents with a penny attached--the amount they said they were willing to contribute to a rescue of Edison.

"PG&E declared bankruptcy months ago," Johnson said, "and contrary to prevailing notions, the world did not come to an end."

The tentative rescue deal Davis reached with Edison allows the utility to back out of the agreement if the Legislature does not approve it by Aug. 15--a deadline lawmakers will almost certainly miss unless they strike a deal before they recess.

Edison Officials Voice Optimism

Edison officials remain optimistic, however, that lawmakers will soon fashion an agreement. Davis threatened this week to haul legislators into a special session on Edison's woes later this month if they fail to forge a compromise, a tactic that encouraged representatives of the utility.

"We're feeling better about the likelihood of having this be resolved in time," said Edison spokesman Brian Bennett.

The Edison deal is among many interrelated facets of Davis' efforts to end the energy crisis and escape with a working electricity market in California. As such, it is a complicated proposal.

Indeed, even some of the basics are hard to discern. For one thing, the continuing debate in Washington over whether California is owed billions in refunds for overcharges by power generators makes it difficult for lawmakers even to be sure how big Edison's debt truly is.

California leaders had hoped a mediator would find common ground between the state and energy companies, but those talks broke down earlier this month. The refund dispute now moves to the Federal Energy Regulatory Commission--and possibly to the courts, where it could take years to resolve.

"Now we have to act, not knowing what the outcome of that process will be," said Assemblyman Fred Keeley (D-Boulder Creek), one of the legislators working to craft an Edison deal.

Then there is the $43 billion in long-term power contracts that Davis signed with energy companies this year in hopes of stabilizing supplies for years to come.

Many lawmakers are convinced that those contracts, which are to be paid off over the next 15 years by utility consumers, will leave less money for the utilities to regain their financial footing. That would probably force the state to raise electric rates again in coming months.

That, in turn, would make it more politically difficult for lawmakers to approve the Edison deal, which calls for utility ratepayers to retire the company's $3.5-billion under-collection through a special surcharge on their bills.

"One of the major problems is those long-term contracts," said Assemblyman Keith Richman (R-Northridge), who is leading the GOP's efforts to cut an Edison deal in the Assembly. "These contracts are going to burden the ratepayers for generations, and appear to be a major impediment to a solution with Edison."

Moreover, many lawmakers want to ensure as part of the Edison deal that at least the largest business consumers maintain the right to shop around for the cheapest power providers--one of the main selling points of California's 1996 experiment in electricity deregulation.

While businesses have been demanding the so-called direct access, lawmakers and some consumer groups have voiced concern. They say droves of businesses will flee the utilities for better deals than the governor's long-term contracts provide--leaving residential customers in the lurch.

Amid all these obstacles, a team of Senate Democrats has been huddling with representatives of the Davis administration for the last two days, working on a new version of the Edison agreement.

A draft being discussed Thursday evening would abandon the controversial plan to purchase the utility's transmission grid, whose value has been questioned. Also, it would not give Edison any help in erasing the roughly $1 billion it owes power plant owners, leaving the utility to try to get that debt eliminated in the federal fight with the generators.

Instead, the new agreement would only help Edison shrink the $2.5 billion in debt it owes to banks and smaller, alternative energy producers. Large power customers would bear the burden of the costs.

"These guys are going to come up with something," said Senate President Pro Tempore John Burton (D-San Francisco) of his Senate team. "If Edison doesn't like it, they'll have to take a chance" and send the Davis-backed deal up for a vote.

Rival Proposal Is Unveiled

In the Assembly, meanwhile, a team of lawmakers Thursday unveiled a rival Edison proposal that would also attempt to shield homeowners and smaller businesses from high rates.

To do so, it would force industrial consumers to pay the utility's debts--including a portion of the amount owed generators--in exchange for allowing big consumers the chance to negotiate their own power deals on the open market.

The proposal represents an effort to coax generators into accepting less than they are owed by Edison, because it would allow them to quickly receive prompt payment from large power consumers if they agreed to accept only a fraction of their bills.

-- PHO (owennos@bigfoot.com), July 13, 2001