Published Saturday, February 17, 2001

PG&E unhappy with plan POWER CRISIS

Gov. Davis' proposal to buy transmission lines from the company is not met favorably; the utility says it does not want a 'bailout'

By Andrew LaMar TIMES STAFF WRITER

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SACRAMENTO -- Troubled PG&E turned a cold shoulder to a plan unveiled by Gov. Gray Davis on Friday that proposes buying its transmission lines and forcing it to make several profit-limiting commitments in exchange for the right to bill customers for some of its debt.

Other than issuing a terse statement, however, Pacific Gas & Electric Co. officials refused to elaborate on the much-anticipated proposal to bail the company out of financial distress. For more than a month, PG&E officials have said the company is on the verge of bankruptcy.

Should PG&E and Southern California Edison sign off on the plan and the Legislature approve it, Bay Area residents are likely to see increased electricity rates as a result, many experts believe. But how rates will be affected depends on the form of the final deal.

The plan, announced by Davis and backed by Democratic legislative leaders, drew skepticism from consumer advocates, who said it signals that rate increases are imminent, and energy producers, who said they question how the state will run the transmission lines.

The cost, which is to be negotiated, could run anywhere from $3 billion to $8 billion. Policymakers say the sale will give the utilities cash they desperately need to pay off debts they say amount to $13 billion.

"How do you repay $4 billion or $5 billion without raising rates?" asked Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights. "It's going to lead to a rate hike or 25 years of a bailout. Either way, it's a bad deal for consumers."

In addition, the plan requires PG&E and Edison to drop all pending lawsuits against the state, agree to easements protecting more than 88,000 acres of land surrounding hydroelectric facilities and use money from parent corporations to pay down the debt.

The proposal calls for the state to buy 26,000 miles of electricity transmission lines from PG&E, Edison and San Diego Gas & Electric. To finance the sale, the state would issue revenue bonds that would be paid off by fees charged on using the lines.

In a written statement, PG&E said it does not seek a "rescue" or "bailout" but rather wants to bill ratepayers for the high cost of wholesale electricity during the past nine months because it believes it is entitled to under the law. The company's electricity rates are controlled by the Public Utilities Commission, which has not allowed it to pass on the costs.

"Any solution must be fair to shareholders and ratepayers," the statement said. "The governor's framework does not yet meet this objective."

PG&E has not embraced the prospect of selling its transmission lines. Company Chairman Robert Glynn has compared the loss of transmission lines to a supermarket being told it can no longer sell bread and milk.

Spokesman Ron Low said he could not comment further. He said, "We don't intend to negotiate in the newspaper."

On the other hand, John Bryson, chairman of Edison International, has said he would consider selling his company's transmission lines as long as a fair price is offered.

"Basically, our response today is we're not commenting and we're still studying the proposal," said Steve Hansen, an Edison spokesman.

Davis said he expects negotiations to begin in earnest with utility companies now that he has settled on the plan's major provisions. At a Capitol press conference, the governor shied away from offering details and said he didn't want to divulge the state's negotiating position.

However, he said he expects parent corporations to provide "significant contributions" to Edison and PG&E as part of the deal. Edison International and PG&E Corp. received billions of dollars from their utility subsidiaries the three years preceding last summer's market meltdown.

The governor wants the parent corporations to use tax refunds of between $500 million and $1 billion that each anticipates this year to pay the debt.

"We're in negotiations," Davis said. "I'm not saying that the utilities are in love with the idea, but it's not a new idea. It has been on the table for the last couple of months."

Another part of the proposal prompted praise from environmentalists, who have been advocating the protection of 145,000 acres owned by PG&E around its hydroelectric system.

Under the governor's plan, the state would pay a large fee to PG&E for the company to protect 88,000 acres from future development and preserve them for outdoor recreation. The remainder of PG&E's 145,000 acres are under lease to the federal government as part of leases to run the hydroelectric facilities.

Edison owns less than 10,000 acres of hydroelectric land.

"I think that is huge for Californians," said Johanna Thomas, a regional director for the Environmental Defense Fund. "These lands have been quasi-public for generations, and this will keep them that way."

Much of the land adjoins federal forests or other wilderness areas that are popular for fishing, hiking and boating. Environmentalists had feared PG&E would sell off the lands as it moved to dump its hydroelectric plants.

By announcing the plan, the governor won some credit for moving ahead, even though generators renewed their warnings that time is running short. With several creditors committees formed, the utilities could be dragged into bankruptcy court any day.

"We think progress is being made," said Jan Smutny-Jones, the executive director of the trade association Independent Energy Producers. "We really want to stress the importance of getting these issues fixed and fixed quickly."

Smutny-Jones said the deal must be done within the next week.

Davis said he expects to have a final deal in legislation by the end of next week.

Wall Street reacted favorably to the governor's plan.

"It's more comprehensive than I thought it would be, and it can be workable," said Steven Fleishman, a utilities analyst with Merrill Lynch's New York office. "The thumbs up or thumbs down only comes when it passes."

The governor said his plan is "a balanced business transaction" than can be accomplished without raising rates; however, Republicans, who have attacked the plan for days, disagreed.

"There's no way this can take place without massive rate hikes," Assemblyman John Campbell, R-Irvine, said. "Maybe that's the real bailout, a bailout of Gray Davis' neglect."

Staff writer Mike Taugher contributed to this story.

http://www.contracostatimes.com/news/topstory/theplan_20010217.htm

-- Martin Thompson (mthom1927@aol.com), February 17, 2001