Power Crisis: Fog Begins to Lift

California’s effort to resolve its energy crisis now is headed down two radically different tracks, one through the U.S. Bankruptcy Court and the other via the state regulatory and political process. Since each route leads into unknown territory, no one knows how this is going to come out, but the divergence itself has potential benefits. State political leaders and other Californians will be able to weigh each approach as Pacific Gas & Electric’s case progresses through federal court and Southern California Edison’s winds through the Legislature and the state Public Utilities Commission.

In the wake of PG&E;’s bankruptcy filing Friday, Gov. Gray Davis announced that accelerated negotiations with Southern California Edison had produced an agreement to help the firm out of debt with a state purchase of Edison’s electricity transmission grid for $2.76 billion.

There are also potential benefits in Edison’s decision to deal with the state rather than go into bankruptcy. Some are spelled out in a 36-page memorandum of understanding reached with Davis. A major provision is that Edison must sell all of its power generation to the state for the next 10 years at cost, a figure to be determined by the PUC. This amounts to about 40% of the power that Edison supplies to its service area, which covers Southern California except for the San Diego region and the cities of Los Angeles, Pasadena, Glendale and Anaheim.

One troubling question is whether it still makes sense for the state to buy Edison’s share of the state power transmission grid in the absence of a similar deal with PG&E.; Davis insists that even with a portion of the grid, the state will be able to expand it and make it more reliable, and therefore he is continuing negotiations with San Diego Gas & Electric for its portion. This is an issue the Legislature needs to explore, along with whether any additional rate hikes are necessary--Davis says they are not--and how much Edison’s parent firm should be required to contribute to the deal. What Davis agreed to may be good for Edison, but is it too good?

The Edison agreement won support from the investment firm Goldman Sachs, which suggested it serve as a pattern for a quick restructuring of PG&E--something; the Bankruptcy Court would probably have the power to do. PG&E; has summarily rejected additional talks with the state, but Bankruptcy Judge Dennis Montali should examine the Edison deal carefully for elements that might be of value in the PG&E; case.

The damage done over many months--to the utilities’ financial health, to the state’s coffers and credibility, to consumer confidence--cannot be repaired overnight. It will take months for electricity rate hikes to start denting the utilities’ debts, for the state’s financial drain to be added up and for the prospects of repayment to be clear. It is also possible that the crisis has not hit bottom yet, and that a vicious brew of summer heat, unregulated price spikes and electricity shortages will deal the state a knockout blow. Even so, forward motion toward solutions is now visible. It is an improvement over the opaque muddle that existed even a week ago.

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For more information: The Edison agreement is on the Internet at www.governor.ca.gov. Click on “Issues,” then “Energy” and “All latest actions.”