Plan to Rescue Edison Stalls Power: Few lawmakers back Davis in the deal he reached with the utility. Alternatives are being crafted, but legislators are wary of being blamed for new failures. Some see benefits in bankruptcy.

By MIGUEL BUSTILLO and CARL INGRAM, Times Staff Writers

SACRAMENTO--Despite months of negotiations, Gov. Gray Davis' plan to save Southern California Edison, one of California's biggest utilities, is effectively dead in the state Legislature, leaders of both houses now agree. Not only has Davis failed to garner support for his more than $3-billion plan to keep the utility out of bankruptcy--in part by having the state purchase its transmission lines--but follow-up efforts by leading lawmakers to fashion an alternative are also falling flat. As a result, any alternative proposal to rescue Edison will probably have to be approved on a party-line vote by Democrats. The reasons are complex, according to legislators working to close the Edison deal, but ultimately come down to simple politics, and are emblematic of what has been a plodding, partisan response in the state Capitol to the energy crisis. The stakes are high, because restoring Edison to financial health and requiring the utility to temporarily sell power at lower prices are linchpins of Davis' plan to get the state out of the business of buying electricity. Nevertheless, leaders in the Legislature say Davis' approach has few backers. "I don't think the governor's [plan] has support in either party in either house," said Assembly Speaker Bob Hertzberg (D-Sherman Oaks). "The issue is whether we can come up with something else, and I think we can." Senate leader John Burton (D-San Francisco), who has been critical of the deal Davis and Edison put together from the outset, said it is certainly dead in the Legislature, but that a more far-reaching proposal may still emerge. "Hopefully, we will find a long-term solution" to the state's energy mess, Burton said. The Edison deal alone "is not going to solve anything. It is not going to reduce rates, and it is not going to prevent blackouts." Since January, California has authorized more than $7 billion in taxpayer money to buy power for private utilities in order to avoid mass blackouts. It is a perilous fiscal situation that has drained the state budget and led to downgrades of the state's credit rating on Wall Street. Lawmakers are wary of making an even greater blunder than they did in 1996, when they unanimously approved what is now widely considered to be a botched scheme to deregulate electricity in California. In both the Assembly and Senate, most Democrats and Republicans are convinced there is no way for them to save Edison without appearing to sanction a huge bailout similar to the federal government's rescue of Chrysler in 1980--one with less financial reward for the state. As a result, they all want to get something of value in return from Edison--high-voltage transmission lines, hydroelectric power plants or guarantees that the utility will boost energy supplies--but are sharply split on what is best. A core element of all Edison rescue programs being considered is a proposal to use a chunk of customers' monthly electric bills to repay the utility's huge debt, a solution many election-conscious legislators find as appetizing as a suicide pill.

Consumer Activists Threaten Initiative The deal only requires a majority vote, but without two-thirds approval it would be wide open to an initiative challenge--a prospect that frightens politicians. Consumer activists have already threatened to strike back with a referendum next year, when Davis and lawmakers will be seeking reelection. Democrats, who hold majorities in both houses, cannot agree on how to save Edison--or whether it is even proper for government to do so. Some have grown convinced that California would be better off letting Edison follow Pacific Gas & Electric Co. into U.S. Bankruptcy Court. Indeed, after PG&E filed for protection from creditors in Bankruptcy Court last month, and massive blackouts failed to materialize, legislative momentum to save Edison from a similar fate all but vanished. "The urgency of doing anything on behalf of Edison is gone," said Sen. Don Perata (D-Alameda). Meanwhile, Democratic efforts to forge a bipartisan solution with Republicans have unraveled, and GOP lawmakers are now advancing their own plan. Legislative leaders realized early on that liberals and conservatives were unlikely to ever agree on details of a deal, so some Democrats and Republicans attempted to form a centrist coalition. But the parties have become increasingly distrustful of each other as the climate in Sacramento over who is to blame for California's power problems grows ever more partisan. Sensing they were being frozen out of negotiations, Assembly Republicans rolled out a rival proposal last week that was focused on increasing power supplies in exchange for the rescue. Assembly Republican leader Dave Cox (R-Fair Oaks) said he had hoped to pursue a bipartisan solution, but, "Regrettably, it appears that [the Legislature] is not moving in that direction now." The Republicans' decision surprised and angered members of the "Plan B Group," a loose-knit cadre of Democratic lawmakers that has been working with Republicans to hash out an alternative to Davis' proposal. Members of the group say they are close to unveiling a complex counterproposal that could garner greater support, but now fear that they may have to seek approval on a party-line basis. Despite the setbacks, Davis and many lawmakers still say some form of the Edison rescue plan will clear the Senate and Assembly this summer. But since Davis announced he had reached a deal with Edison executives to save the utility in April, nothing has been accomplished in the Legislature to implement it. The long delay is adding to the problem. Every day that passes increases the likelihood that one of Edison's numerous creditors will drag the debt-strapped utility into an involuntary bankruptcy. The lack of progress also increases the chances that Edison, like PG&E, will lose patience with politicians in Sacramento and take itself into bankruptcy court. Edison has ramped up its public relations efforts in recent weeks and has launched an aggressive multimedia campaign to pressure legislators into approving the deal, replete with firefighter testimonials on television and direct mail pitches to stockholders asking them to write their state representatives. The rescue deal Davis reached with Edison calls for the state to pay the utility $2.76 billion for its network of high-voltage transmission lines. It would allow the state to issue bonds to finance the purchase, and declares that Edison is to use the money to pare down its debt, estimated at $3.5 billion. Most important, the deal would set aside a portion of ratepayers' monthly utility bills to pay off Edison's "undercollections," huge debts the utility incurred last year and early this year because it was not allowed by the state to pass on to consumers the full cost of wholesale power. In return, Edison would agree to sell the electricity it generates from its power plants at cost for the next decade, lowering the state's overall power-buying expenses. From the minute it was announced, however, lawmakers from both parties have called Davis' deal overly generous and questioned the benefit to the public. Republicans, who have opposed the takeover from the outset, are supporting an alternative they call "Plan R." Like Davis' proposal, the Assembly GOP plan allows Edison to recover debts by siphoning a portion of electric rates, but requires in to bolster power supplies in return. "This whole electricity crisis is a supply-demand imbalance," said Assemblyman Keith Richman (R-Northridge), one of the architects of the Republican plan. "We need to get to a point where there is a supply surplus." In addition, the GOP plan calls for the electricity generators owed billions by Edison to "take a haircut," Capitol parlance for forgiving some of what they are owed. Davis and Burton have also called for the generators to accept a 30% reduction in outstanding payments, and the idea is part of the alternative Edison deal being pieced together by the Democrats' Plan B Group. Assemblyman John Dutra (D-Fremont), one of the group's leaders, said its members have been meeting with consumer groups, Edison representatives and others, and believe they are close to satisfying the groups at odds over the rescue plan. But because of lingering differences with Republicans, Dutra said they may have to try passing partisan legislation. "This is not a situation where we should be playing a political game," he said. "We have to find a solution, because the alternative for the state is social and economic chaos." Assemblyman Bill Leonard (R-San Bernardino) said he was disappointed that what started out in January as a bipartisan effort to resolve energy issues had collapsed into a nasty partisan standoff. Leonard said he feared that the bipartisan spirit would not return. "The reservoirs of goodwill are not full right now," Leonard said. "We're in a goodwill drought."

-- pho (owennos@bigfoot.com), May 28, 2001

Answers

Stop beating a dead horse. That, by any measure, is the best solution. Let bankruptcy roll.

-- Chance (fruitloops@hotmail.com), May 28, 2001.

Yup, it's a funny thing but you just can't legislate solvency.

-- JackW (jpayne@webtv.net), May 28, 2001.