Davis says state has tentative deal for Edison grid

Updated: Feb. 23, 2001 - 4:42 p.m.

LOS ANGELES -- After a week of intense closed-door negotiations with utility representatives, Gov. Gray Davis said Friday he had reached an "agreement in principle" with Southern California Edison to buy the utility's power lines for an estimated $2.7 billion.

The deal also requires Edison International, the parent company of Edison, to sell cheap power to the state for a decade. "This is the framework of a good, balanced deal," Davis said. "It's not a final deal. There's a lot of work to be done, But we're making progress."

The governor said he did not expect customer rates to increase as a result of the deal.

Edison did not immediately return calls seeking comment. The state has been in talks for a week to buy a total of 26,000 miles of transmission lines from Edison, Pacific Gas and Electric and Sempra Energy, which operates San Diego Gas & Electric. The total cost of the lines could range from $4.5 billion to $7 billion.

The effort is intended to help restore the financial health of the state's two largest utilities, PG&E and Edison, both of which are near bankruptcy. The $2.7 billion price for the Edison lines amounts to 2.3 times the estimated book value, Davis said.

The utilities say they have lost nearly $13 billion since June, trapped between soaring wholesale power prices and state-imposed rate caps for consumers. The tentative plan announced by Davis would allow Edison to issue bonds for a substantial portion of its losses.

Davis said the state is making good progress in its talks with Sempra and "some progress" with PG&E. Thursday, Davis said he will not sign off on any grid buyout without all three utilities' participation.

"I do not believe we can make a satisfactory arrangement without 60 percent of the transmission grid, and that would require cooperation with PG&E," he said Friday.

PG&E spokesman Ron Low said Thursday night that talks had ended with no resolution that day. "These are complicated problems that will not be solved overnight," Low said. "There are clearly some issues where we are very far apart."

Still, PG&E chief executive officer Robert Glynn Jr. said Friday the meeting with Davis was a "milestone in the resolution of California's energy crisis" and said he was willing to meet further to discuss the utility's proposal.

"Each utility's issues and opportunities in this crisis are different, and we believe that PG&E has proposed a detailed solution that balances ratepayer and shareholder interests," Glynn said in a statement issued Friday before the governor's news conference.

The company said it would have no further comment.

The tentative agreement also calls for:

-Edison parent Edison International to make payments to the utility of about $420 million. -Edison International to commit the entire output of its Sunrise Mission power project at low, cost-based rates for 10 years. Davis said that arrangement could save ratepayers $500 million over the next two years. -Edison to provide cost-based rates from generating plants it owns for another 10 years. -Edison to drop its lawsuit against the California Public Utilities Commission claiming that imposed rate caps were illegal under federal law.

"This entire transaction, which I believe is fair and balanced for both sides, will be accomplished within the existing rate structure," Davis said. "We will not be asking any more of consumers to allow this transaction to come to pass." Davis said negotiations will continue in the coming days.

Consumer advocate Harvey Rosenfield called the governor's plan "an outrageous giveaway" and predicted that if lawmakers didn't halt it, voters would revolt.

"The most outrageous part of this isn't even paying 2.3 times what the lines are worth, but then allowing the parent companies that siphoned off billions of dollars to pay only the tax payment they already owe," Rosenfield said.

The Public Utilities Commission already regulates how much the utilities can charge for power their own plants generate, Rosenfield said.

By Leslie Gornstein, Associated Press Writer

-- Swissrose (cellier3@mindspring.com), February 23, 2001

Answers

transmission system carries hidden costs Nobody knows ultimate price, report says

BY STEVE JOHNSON Mercury News

The thousands of miles of high-voltage transmission lines that Gov. Gray Davis is proposing to buy from the utilities are plagued with problems and no one knows how much it would cost to fix them all.

A new study by the California Public Utilities Commission has found 160 existing and potential problem areas along the 26,000 miles of electric lines. Of those trouble spots -- many of them in the Bay Area -- 53 are expected to significantly crimp the flow of electricity this summer.

Some people have estimated the overall tab for all of those upgrades at about $1 billion. No one can say for sure, according to the commission's report, because no one has attempted to add up the cost of renovating California's power grid. But one way or another, consumers would pick up at least part of the tab.

The report underscores the central issue confronting the state as it considers a multi-billion dollar deal for the lines: Do the advantages of owning the network that transports electricity across the state outweigh the risks?

Advocates say the state could operate the lines more efficiently and cheaply than the utilities. But opponents say that state bureaucrats may not know the hidden costs, or understand the complications of running a system as vast as the power grid.

It will cost $120 million to fix 40 of the trouble spots needing attention by the time hot weather hits. That doesn't include the $200 million that would be needed to fix another major line between Southern and Northern California, known as Path 15. Nor would it cover the cost of other improvements that the report said would be needed between 2002 and 2005.

``Neither the utilities nor the CPUC have analyzed the capital costs'' -- of significantly overhauling the transmission system, said the Feb. 13 report by the commission's Energy Division.

So far, the governor and other lawmakers have been vague about how much the state might wind up paying to take over the transmission lines now owned by Pacific Gas & Electric Co., Southern California Edison and San Diego Gas & Electric Co. On Friday, Davis said he had reached an agreement in principal with Edison to buy its lines for $2.76 billion. But details about what the government is willing to pay for the rest haven't been disclosed.

Under the deal with Edison, the state would purchase the lines for more than twice what the company estimates they are worth. Assuming that's what it eventually pays for all of the lines, one energy specialist estimated Friday, the state would pay more than $7 billion.

Some people say the state can eventually earn the money back through fees it would charge electricity generators, or someone who trades in power, for moving their electricity from one place to another, like a highway toll. Moreover, these experts argue, the money would help rescue PG&E and Edison from the brink of bankruptcy, which is important because the state would still have to rely on the utilities to deliver power to homes and businesses along lesser-voltage ``distribution'' lines, which they would continue to own.

But the deal Davis unveiled troubles some consumers advocates. They had hoped the state would pay less for the lines, although they strongly support the idea of public ownership. ``I think there is a real benefit to it,'' said Nettie Hoge, executive director of the Utility Reform Network in San Francisco. ``But at what price is the question.''

Hoge's group and a study of the proposed transmission takeover by the Center for Energy Efficiency and Renewable Technologies in Sacramento estimate that the state could earn $770 million a year through the fees it would charge. That would mostly be eaten up in maintenance and other costs associated with keeping the lines operating, with a modest profit built in for the utilities, officials with those groups and others said Friday.

PG&E's transmission line costs -- including such things as maintenance, construction, financing and other expenses -- generally consume about 90 percent of the revenue the lines produce, according to company spokesman Ron Low. Assuming the company gets what it wants for this year from the Federal Energy Regulatory Commission, which sets transmission rates, PG&E would earn about $43 million in 2001 over and above its costs, he said.

But if the state took over the system, according to those who advocate such an idea, those costs could be substantially reduced, resulting in a much bigger profit.

For one thing, these sources claim, whatever money the state borrowed to operate or expand the system would be at a lower interest rate than what private utilities can get. They also say the state would save on taxes on the system and by consolidating various functions now carried out by three separate utilities and the Independent System Operator, a quasi state agency that oversees most of the grid.

``We think you can get somewhere around $100 million a year in savings'' at least, said V. John White, of the Center for Energy Efficiency and Renewable Technologies.

Not everyone is convinced of that. ``We don't believe this is going to be a big money-maker for the state,'' said Jan Smutny-Jones of the Independent Energy Producers Association, which represents suppliers.

Given the Public Utilities Commission report on the number of transmission lines needing upgrades, some people fear the state could wind up buying a system plagued with unexpected and expensive problems. Yet no matter who owns the system -- the state or the utilities -- whatever glitches turn up will have to be fixed and paid for by consumers to keep the system operating, said Mark Ziering, an energy division manager with the commission.

``There are a lot of open questions about the future,'' Ziering said. ``There are going to be surprises whether the state takes over the system or not.''

---------------------------------------------------------------------- ---------- Staff writer Brandon Bailey contributed to this report.

Contact Steve Johnson at sjohnson@sjmercury.com or (408) 920-5043.

http://www0.mercurycenter.com/local/center/trans0224.htm

-- Martin Thompson (mthom1927@aol.com), February 24, 2001.