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THE CALIFORNIA ENERGY CRISIS

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

Utilities: Some lawmakers see 'growing support' for purchase of transmission lines. But the state could balk at the cost.

February 08, 2001|DAN MORAIN and DAVID ROSENZWEIG | TIMES STAFF WRITERS

SACRAMENTO — 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.

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