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Davis Needs Stronger Pitch

The governor must present a better case for the Edison bailout if he's to convince the Legislature.

April 22, 2001

Gov. Gray Davis spent much of last week telling state legislators why they should support his proposed bailout agreement with Southern California Edison, but it's a tough sell. He needs to make a stronger case if he is to prove that it's better to solve Edison's staggering debt problems in Sacramento than in Bankruptcy Court. Then Davis must convince lawmakers that the best way to save Edison, the state's second-largest utility, from bankruptcy is to implement the 36-page agreement he negotiated with the utility over the last two months.

Two weeks after voluntarily entering Chapter 11 bankruptcy, Pacific Gas & Electric, the state's other troubled utility, is still providing customers from Bakersfield north with power as if nothing had changed. But Edison officials say a forced Edison bankruptcy would be devastating to the state, partly because the court might order the sale of its remaining power plants to pay off debts. The plants probably would be bought by the same generators blamed for gouging California customers and causing the energy crisis in the first place.

Another reason to avoid bankruptcy, says Edison, is the time it would take to get back in the market as a fully functioning utility. No one knows how many years the PG&E case will take. The Davis-Edison plan would have the company back in the power market by 2003.

Davis' immediate problem is that many of his fellow Democrats, who control both houses of the Legislature, have doubts about the complex plan, which includes the proposed state takeover of Edison's 6,000-mile-long transmission system. Nearly every member of the Legislature has found something in the agreement not to like. One even complained that the proposal could allow logging to continue on Edison lands that are supposed to be protected by a new conservation agreement.

The lawmakers need to focus on a few core matters. First, should the state save Edison from bankruptcy? Second, in doing so, is it fair to require consumers to finance the payoff of Edison's debts at 100 cents on the dollar? Can the plan in fact be financed by the rate increase already proposed by the governor or will consumers be hit yet again?

Davis and the Legislature need to get moving. The governor's office has yet to draft the necessary implementing legislation so lawmakers can schedule hearings and begin formally considering the plan. Lack of action will only encourage Edison creditors to force the Rosemead-based firm into bankruptcy.

One question now is whether it makes any sense for the state to take over Edison's segment of the state transmission grid now that PG&E's portion is probably off the bargaining table. An Edison official said even a portion of the grid has value if the state continues to seek a controlling interest. It's not clear if that is still the state's goal, or should be. One alternative, to give the state something tangible for its assistance, is to take over the utility's profitable hydroelectric power system instead of the grid. This could make the agreement more palatable to lawmakers, though perhaps not to Edison.

The formal hearing process should begin soon so these questions can be answered fully in a public forum. When lawmakers passed deregulation in 1996 they bought a pig in a poke. That must not happen again.

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