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State Says It's Accelerating Plan to Buy Power Utilities' Grid

Government: Talks with Edison are reported near completion, but agreement with heavily indebted PG&E has a way to go.


SACRAMENTO — As blackouts hit California for a second day Tuesday, a key consultant to Gov. Gray Davis said negotiations to buy the power grid owned by the state's largest utilities "are proceeding at an accelerated pace."

Wall Street consultant Joseph Fichera said talks with Southern California Edison could be wrapped up within days, although those with PG&E are much less advanced.

The administration and PG&E have not reached even an agreement in principle, he said. PG&E, which has more debt than Edison, says its transmission lines are more extensive than those of its Southern California counterpart.

The state wants to buy the utilities' transmission lines and other assets for about $7 billion to provide cash to the utilities, help stabilize the electricity supply and ease the power crunch that has plagued California for months. To research the grid purchase, Fichera said, the state has had to pore over 80,000 documents just to assess the utilities' liabilities.

"We are working at a good pace," said Fichera, chief executive of the New York firm Saber Partners. " . . . If we get to a deal-breaker, it might be longer."

By making Fichera, who is also a consultant to the Texas Public Utilities Commission, available to reporters Tuesday, the Davis administration was clearly trying to reassure the public that progress is being made on the governor's plan to pull the state out of the crisis.

Since mid-January, when the big utilities' credit failed and suppliers stopped selling to them, the state has spent nearly $3 billion buying electricity from a handful of large suppliers in Texas, Oklahoma, Georgia and North Carolina. Not a cent has gone to the hundreds of alternative energy suppliers in California who provide about a quarter of the state's electricity.

The Monday and Tuesday blackouts occurred partly because many of the cash-strapped alternative suppliers, including solar, biomass and wind power units, cut their normal supply to the system in half. They say Edison and PG&E have not paid them since November; the utilities say they are out of cash.

Assemblyman Fred Keeley (D-Boulder Creek) said the plight of the alternative suppliers has dragged on because of the complexity of dealing with "almost 700 individual contractors."

Another delaying factor, said Keeley, who with state Sen. Jim Battin (R-La Quinta) worked for almost three months to come up with a legislative plan to lower the small producers' prices, was "the huge enmity . . . manifested between the utilities and the qualifying facilities. These people just don't like each other."

This week's blackouts provided two painful lessons for the Davis administration:

* When it comes to electricity, size doesn't matter--every kilowatt counts. During peak use, a small wind power facility in Riverside County can make the difference between full power and blackouts.

* There is no such thing as a partial solution. Unless the whole energy equation is balanced, the parts don't work.

For the Davis plan to work, several key elements need to come together or utility customers will almost certainly face rate increases above the 19% already set in motion * The cost of power purchased by the state must be reduced through long-term contracts with the big out-of-state producers.

These contracts, the details of which the Davis administration has kept confidential, are still being negotiated by Davis consultant Vikram Budhraja of the Pasadena firm Electric Power Group. The administration says it has concluded 40 contracts with generators, about half of which have been signed.

According to the most recent statistics released by the Department of Water Resources, which buys power for the state, current prices are still well above the rate state Treasurer Phil Angelides says is necessary for a planned $10-billion bond offering to succeed.

The bonds, set for sale in May, will be used to reimburse the state for the money it will have spent by that time to buy electricity. The state is currently spending at a rate of $58 million a day to buy power. If prices stay high, the $10 billion in bonds will not cover the state's power purchases by the end of the summer.

Angelides says he cannot proceed with bridge financing for the bonds until the Public Utilities Commission devises a formula to guarantee that a portion of utility bills will be dedicated to bond repayment. Angelides has estimated that, under the January law that put the state in the power buying business, the state must be reimbursed $2.5 billion annually, and that $1.3 billion is needed to service the debt.

PUC Administrative Law Judge Joseph R. DeUlloa is expected to announce his ruling on the reimbursement rate later this week, leading to a PUC vote on the matter as early as next week.

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