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Calif. utility rescue plan seen in severe trouble Wednesday April 18, 8:48 PM EDT By Nigel Hunt

LOS ANGELES, April 18 (Reuters) - California Gov. Gray Davis' billion dollar plan to save utility Southern California Edison (SCE) from bankruptcy is in deep trouble and could be rejected by legislators in what would be a humiliating setback for the governor, legislative and other sources said on Wednesday.

Such a defeat could trigger a filing by SCE, the state's second largest utility, for Chapter 11 bankruptcy protection. The largest utility, Pacific Gas & Electric, filed for Chapter 11 bankruptcy protection on April 6.

"I find it hard to believe ratepayers and taxpayers could be any worse off in a bankruptcy setting than they would be under the (Davis) SCE proposal," said Debra Bowen, chairwoman of the State Senate's Energy, Utilities & Communications Committee.

Legislative sources said the governor was having so much trouble gathering support for his plan that he could not find anyone to sponsor a bill. One Assembly official called the SCE bailout plan "the most unpopular piece of legislation in years."

"As far as we can tell this is dead on arrival. Davis can't find a legislator who is willing to associate his name with this obscene bailout," said Doug Heller of the Foundation for Taxpayer and Consumer Rights

Davis and the Edison International (EIX) unit SCE announced a complex deal on April 9 intended to save the utility from bankruptcy. The so-called Memorandum of Understanding (MOU) included the state buying SCE's transmission assets for $2.76 billion. It also allowed an increase in rates to let the utility eventually recover billions of dollars it has spent buying power that it has so far been unable to collect.

Davis met Senate Democrats on Wednesday to gain support. Davis spokesman Steve Maviglio said the governor was told the senators would seek improvements. "If the improvements are not deal breakers then the governor will support them," Maviglio said.

One Democrat source said some lawmakers believed the Davis proposal was "dead on arrival" while others wanted to make substantial "improvements" on the deal which would make it acceptable to a majority of members but possibly not to SCE.

"Then if they (SCE) opt for bankruptcy, that is their choice. As it stands Republicans and, I think, a large number of Democrats aren't willing to support the governor's plan," the Democratic source said.

One leading Democrat, State Senate President John Burton, has said that if the state does a deal with SCE it should receive a "hot dog" (appropriate value) for every dollar it spends. Senate Energy Committee chairwoman Bowen said under that the current deal the state appears to be only receiving a bun.

FINANCIAL DISASTER

The financial woes for the two utilities began in late Spring 2000 as prices for wholesale power skyrocketed, boosted by buoyant demand linked to a strong economy and a decade in which virtually no new power plants had been built.

The price hikes brought rich rewards for power generators but financial disaster for utilities who could not pass those costs on to their customers due to a retail price freeze mandated under the state's power deregulation legislation.

There is widespread anger in California directed at generators who have reaped massive profits selling power at prices which in some cases have risen tenfold in a year.

"The MOU looks great for generators who get ratepayers to cover all of their unjust and unreasonable rates and it looks fantastic for Edison shareholders, who get to pass all of their costs through to ratepayers," Bowen said.

"Who doesn't it look great to? The ratepayers who have to spend a minimum -- a minimum -- of $3.5 billion to finance it," she said.

Lawmakers have also expressed doubts about the usefulness to the state of owning SCE's transmission assets without also making a deal to buy those of California's other investor owned utilities, PG&E Corp. (PCG) unit Pacific Gas & Electric and Sempra Energy (SRE) subsidiary San Diego Gas & Electric.

Pacific Gas & Electric's bankruptcy filing came after talks with Davis on selling the state their transmission assets stalled.

"Questions need to be asked during the review process on regarding the transmission purchase. Does it make sense to own only one leg of a three legged stool?" said Dave Sebeck, a spokesman for Sen. Burton.

Democrats have majorities in both the State Assembly and State Senate. Davis also attempted to court Senate Republicans at a meeting Tuesday but got a cool response.

"Buying the transmission lines is like if your are starving for food and you buy a plate," James Fisfis, the press secretary for Assembly Republican leader Dave Cox, said.

http://money.iwon.com/jsp/nw/nwdt_rt.jsp?section=news&news_id=reu-n1830969&feed=reu&date=20010418&cat=INDUSTRY

-- Martin Thompson (mthom1927@aol.com), April 18, 2001

Answers

Starving? Buy a plate.

I like that.

-- QMan (qman@c-zone.net), April 18, 2001.