CA - Lawmakers Skeptical Of Edison-Davis Agreement (KFWB) -- Responding to increased speculation that its deal with California's governor may fall through, Edison International today is adamant that its billion-dollar agreement to sell its transmission lines to the state is imperative to the company's financial health. Reconvening this week after a recess, many state legislators are getting a look at the agreement for the first time and raising questions about its viability.

In a note to clients, the Standard & Poors credit rating agency said the "memorandum of understanding" is in "deep trouble and could be rejected by legislators," according to a Los Angeles Times report.

KFWB Senior Correspondent Bob Jimenez says it does not look like the Legislature will reject the agreement, but it may alter it.

"This is a balanced agreement. And to the extent that you want to make changes to it -- if you pull something out of it, you're going to have to add something to it," said Bob Foster, Senior Vice President of Edison.

Foster admits lawmakers have many questions, but he insists the agreement must be passed intact in order for the utility to avoid bankruptcy.

"I'd be foolish to tell you, no, you can't change one word of this (agreement). But the fact is the essence of this agreement needs to pretty much stay where it is."

Indications are that may not happen. Some legislators have suggested that Edison filing for bankruptcy may not necessarily be a bad thing.

In the agreement, the state would purchase Edison's transmission grid for $2.76 billion. Edison would take out $2 billion in bonds. The money would pay off the utility's debt from past electricity purchases.

Edison has agreed to sell power to the state at prices tied to the cost of producing it.

4.20.01, 12:45p

-- PHO (owennos@bigfoot.com), April 20, 2001

Answers

This is the zaniest agreement I've ever heard of. A government body has no business taking over part of the operations of a private corporation. Bureaucrats can, in no manner, shape, or form, take over the responsibilites of private enterprise and be expected to perform equally as well. Ouch! My condolences to the people of California. Their politicians have run amuck.

Whether this deal goes through or not it is a lose-lose proposition. Only disaster can follow.

-- Wayward (Wayward@webtv.net), April 20, 2001.

I, too, can see no way out for Californians. Worst part of this is the spillover effect. This mess is bound to affect surrounding states like Arizona, Nevada, Oregon, and Washington - with help from the Northwest draught - almost immediately. Then, the cumulative effects will spread eastward.

Nowhere in the mainstream financial press, in all their talk about a reviving economy late this year, is this horrendous energy situation properly addressed. I can't begin to figure why they seem to be asleep at the switch.

-- Chance (fruitloops@hotmail.com), April 20, 2001.

I've passed on much of the California electricity stories I've read here to a cousin who lives there and now can't sleep.

-- LillyLP (lillyLP@aol.com), April 20, 2001.

More than a little skepticism is in order. This agreement must have been written by those same wonderful folks who brought to CA what they laughingly call "deregulation". Only in LaLa Land is more, and worse, regulation named deregulation.

If this article has it right, the agreement consists of three simple steps: 1) the state buys the SC Ed transmission lines for a cool $2.76bn, 2) SC Ed "takes out" $2bn in bonds, and 3) SC Ed agrees to sell power to the state at prices tied to the cost of producing it. A more recent post (California power purchases increase to $5.7bn since January) puts a slightly difdferent twist on it, substituting for the bond sale that SC Ed is to "hand over development rights on 20,000 acres in the Sierra Nevada mountains". The relevance of this move isn't clear.

'Scuse me, but isn't the major problem the fact that "deregulation" required SC Ed to sell it's generating plants and buy power on the open market. As part of this ingenious scheme the price of power to SC Ed customers was fixed but the price they have to pay for it is not. SC Ed now finds itself in the unenviable position of paying more for power than the price at which they can sell it. Isn't this the classical joke, "we lose a litle on each sale but we make it up in volume"? How does this cockamamie scheme resolve the problem?

Let's dissect these three elements, one by one. First, just what is meant by transmission lines? Presumably it means some part of the power grid between the 500,000volt lines from distant generators to the 220v and 440v lines SC Ed provides to consumers. That puts the state as a third party between the generators and the utility company, Is that going to reduce cost, improve service or make SC Ed solvent? It conjures up visions of the DMV, Franchise Tax Board and other "services" in which the emplyees enjoy on the job retirement. Good luck!

Next we have the bond sale. Again, good luck. Here we have the spectacle of a company teetering on the brink of bankruptcy in a financial market in a similar fix. What kind of rating will they be given? Junk, or lower? Where are they going to find the suckers? All those people who suffered margin calls?

And now, the zaniest of all, "Edison has agreed to sell power to the state at prices tied to the cost of producing it". Just a darn minute. Isn't SC Ed in the business of buying from generators and selling to consumers? Are they now becoming a generator? Who sells to the consumer, the state? Who's on first?

See also my Answer to "California power purchases increase to $5.7 billion since January".

-- Warren Ketler (wrkttl@earthlink.net), April 21, 2001.