fresnobee.com The Fresno Bee

Proposal touts rate stability

Davis says state can buy grid and not have to raise rates further.

By Lesli A. Maxwell Bee Capitol Bureau

(Published February 17, 2001) SACRAMENTO -- Gov. Davis unveiled Friday a multibillion dollar plan to reel California's huge utility companies back from the edge of bankruptcy -- a financial recovery deal he says the state can make without raising rates for consumers.

Davis' plan to rescue California from its nearly 3-month-old energy crisis comes after weeks of handwringing and fierce debate at the Capitol and after Californians weathered five weeks of dangerously low electricity supplies and threats of rolling blackouts.

"The proposal I am making Friday is a balanced business transaction," Davis said. "It provides real value to the ratepayers while allowing the utilities to go back in business and keep the lights on. It is my hope and plan that all this can be done within the existing rate structure."

Davis said he hopes the Legislature will sign off on his plan by the end of next week. He said negotiations with the utility companies would begin in earnest next week.

The principal elements of Davis' rescue plan include a state buyout of the utilities' portion of the 32,000-mile electricity transmission grid, giving the debt-ridden companies cash to start paying off their long line of creditors.

The state would issue revenue bonds to buy the complex system of high-voltage lines, but Davis would not say what the price tag might be. The book value is estimated at $3 billion, but the actual value could be much higher.

Under the proposal, customers would see a charge on their bills, called a "dedicated rate component," that would go toward paying off private revenue bonds the utilities would issue once their credit is restored, Davis said.

The governor said the dedicated rate component does not constitute a new charge for ratepayers beyond the 9% increase approved in late December by the Public Utilities Commission. A 10% increase will likely occur next year when a rate cut imposed by the Legislature in 1996 expires.

The Davis plan also would put the parent companies of Pacific Gas & Electric Co. and Southern California Edison on the hook to return to their struggling subsidiaries hundreds of millions in tax refunds.

Davis said he also wants the utility companies to provide power generated at their hydroelectric and nuclear plants to the state at an "affordable" rate for 10 years.

Some Republicans and consumer advocates immediately denounced the plan as a bailout on the backs of utilities. Democrats expressed support for the plan's "framework," but a few said they harbored uncertainties that needed to be addressed.

"It's an intriguing plan," said Assembly Member Sarah Reyes, D-Fresno. "I have a whole host of questions, though, and until I get answers, I'm not committed to voting one way or the other."

Reyes is concerned that counties and cities, which collect property taxes from the utilities for the transmission lines that run through their jurisdictions, might be hurt by state ownership of those lines.

Sen. Chuck Poochigian, R-Fresno, said he won't support state ownership of the transmission grid because of doubts about how effectively the state could operate it and finance the millions of dollars in upgrades the system needs.

He also expressed skepticism over Davis' assertion that rates won't have be raised.

"It seems to me that, given the credit condition of the utilities and the problems we're having with getting reasonable prices for supply, how would you have a dedicated rate stream without raising rates?" Poochigian said.

Both Poochigian and Reyes expressed reservations about another element of Davis' plan, which would put "conservation easements" on utility-owned property in watershed areas that surround their hydroelectric dams in the Sierra.

Billed in the plan as a way to protect the environmentally sensitive lands, the two Valley lawmakers are suspicious that such easements could affect water delivery to farmers.

"Any time you start talking about watersheds, easements and state ownership of watershed lands, that's going to make people already concerned about their water supply very anxious," Poochigian said.

Also under the proposed deal, the utilities would drop federal lawsuits against the PUC that seek massive rate increases to cover their debt.

The reporter can be reached at lmaxwell@fresnobee.com or (916) 326-5541.

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