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California and the West | THE CALIFORNIA ENERGY CRISIS

State, Edison Discussed Pact to Pay Off Firm's Huge Debt

Proposed deal would commit customers to aiding utility even if that meant another rate hike. Davis spokesman says memo has been changed significantly.

April 02, 2001|DAN MORAIN | TIMES STAFF WRITER

SACRAMENTO — A draft agreement between the Davis administration and Southern California Edison would seek to return the utility to financial stability by committing ratepayers to help pay off its multibillion-dollar debt in future years even if the state's proposed purchase of Edison's transmission system falls through.

The proposal, which could translate into yet another electricity rate hike on top of the record increase approved last week, contains provisions that would assure investors and creditors of Edison's ability to dodge bankruptcy. Yet those elements appear certain, if they remain in the final version, to anger some consumer advocates and lawmakers.

As negotiations continue between Edison and the administration, a spokesman for the governor cautioned that the draft, dated last Tuesday and obtained by The Times, has been updated and changed significantly.

Nevertheless, the 40-page memorandum of understanding lays out the most detailed framework yet of the administration's attempt to avert the utility's bankruptcy. Gov. Gray Davis has made a state rescue of debt-ridden Edison and Pacific Gas & Electric Co. a key part of efforts to tame California's energy crisis. Negotiations with PG&E have lagged, but officials believe a deal with Edison could set the stage for similar agreements with the other utilities.

"This draft is ancient history," Davis spokesman Steve Maviglio said Sunday of the document dated six days ago. "We have moved beyond that, and continue to make progress and hope to be able to make an announcement shortly."

Executives of Rosemead-based Edison could not be reached for comment.

There is at least one more recent draft, officials said. But the document from Tuesday reflects the direction of negotiations. Internal memos dating back weeks describe similar elements in the discussions.

The talks have been going on behind closed doors for almost two months. Even legislative leaders, including Davis' fellow Democrats, have learned little about details of the talks--to their dismay.

"I have no idea what's in the memorandum of understanding," Senate President Pro Tem John Burton (D-San Francisco) said Sunday. "But the Legislature is going to hold very comprehensive public hearings, so we know what we're getting into. . . . Whatever the deals are, we're going to have very full and open hearings: What is it we're getting? What is it we're giving? And what is the price?"

The draft shows, as previously announced, that Davis is offering to buy Edison's portion of the 32,000-mile-long statewide system of high-voltage transmission lines for $2.76 billion, or 2.3 times its listed book value. For the transaction to work, Davis hopes as well to buy the portions of the grid owned by PG&E and San Diego Gas & Electric Co., for a total price of about $7 billion.

The document says the state would buy the transmission grid "as is, where is, and with all faults" and would contract with Edison to operate its portion at a price to be negotiated. If the state decides to sell the grid at some later date, Edison, like other businesses, would have the right to bid to buy it back.

Edison would use cash from the purchase to help pay off its massive debt--the gap between skyrocketing wholesale electricity prices and what the utility was allowed to charge ratepayers. In federal filings, Edison has estimated that debt at $5.5 billion; barring regulatory or legislative relief, the utility's parent company said in its most recent filing, it may take a $2.7-billion charge against earnings for the fourth quarter of 2000.

But the state takeover could fail for a variety of reasons; the Federal Energy Regulatory Commission could, for example, block the state effort.

The document gives no specifics about a backup plan for the state to acquire other assets if it fails in its efforts to take over the entire transmission system. However, the draft does contain provisions that would allow Edison to again become financially viable.

In particular, the draft agreement says consumers could be obligated to pay a so-called dedicated rate component to help the utility restructure its debt, even if the grid sale is not completed. The memorandum further states that the charge would not appear in rates for two years, and that the debt would be repaid over 12 years.

The charge, at an amount not specified in the draft agreement, presumably would be on top of electricity rate hikes approved last week that could be as high as 46% for some users. As such, the charge would face certain opposition from Republican lawmakers, who have criticized the rate hikes, and from some Democratic legislators, who are increasingly skeptical about Davis' handling of the crisis.

Consumer advocate Mike Florio of the Utility Reform Network explained the provision by saying it may simply authorize Edison to begin restructuring its debt, pending final approval of the highly complex transmission grid sale, which could take a year or more to consummate.

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