Deal to Buy Edison Grid Raises Doubts in Capitol

Gov. Gray Davis may face a bigger challenge selling legislators on his deal to keep Southern California Edison out of bankruptcy than he did in forging the agreement with the utility.

Legislators returning to Sacramento on Monday after their spring break openly voiced objections to and concerns about the deal to purchase Edison’s power lines in exchange for $2.76 billion and a variety of state guarantees.

Some Republicans and Democrats called Davis’ deal too generous. Others questioned whether a state-financed rescue of Edison still makes sense after the bankruptcy of Pacific Gas & Electric Co., California’s largest private utility.

If the Edison deal came to a vote right now, several legislators said, it would almost certainly fail.

“I think the governor understands that,” said Assemblyman Tony Cardenas (D-Sylmar). “There are lots and lots of questions. With the [PG&E;] bankruptcy, the world changes. We have to reconsider how this deal fits into the new world we are living in.”

Davis is meeting this week with Senate Republicans and Democrats in both houses.

Republicans strongly oppose the Edison deal and say it will be dead on arrival when it finally reaches the Legislature, which could still be days away.

“It’s a bailout,” said Assemblyman Tony Strickland (R-Moorpark). “Why would the people of California want to own this thing? That’s money that could be better used on schools, health care and tax cuts.”

Other legislators are somewhat less pessimistic, noting that a governor can wield great negotiating clout with legislators.

“I haven’t talked to anybody who is for it,” said Sen. Don Perata (D-Alameda), who has become a vocal critic of Davis’ approach to the energy crisis. “I’m not saying he can’t sell it; I’m saying he has to sell it.”

Yet amid increased grumbling from legislators concerned about their political futures, and threats of a ballot initiative by angry consumer groups to re-regulate electricity, even a full-court press by Davis may not be enough.

State Senate leader John Burton (D-San Francisco) said the Edison deal will probably be a “take it or leave it” arrangement in the Legislature that leaves legislators little room to make changes without affecting the pact Davis reached with the firm. Burton said Monday that the legislation will not be introduced until it passes muster from Edison’s attorneys.

“I’ve got some questions--serious questions,” Burton said.

Among his concerns is a guarantee that Edison be allowed to generate an 11.6% return on equity until 2010--a concession that takes that decision out of the hands of the California Public Utilities Commission, which usually adjusts the rate.

“What is the impact of limiting the role of the PUC?” Burton said.

Legislators, eager to avoid controversy, promise that, after the deal becomes a bill in the Legislature, it will get a thorough vetting that could last weeks. In that airing out process, some now say it could be picked to death.

Perhaps the biggest question they have about the Edison deal is whether it would still accomplish what it was intended to do: buy out, not bail out, the nearly bankrupt utility.

Davis’ plan originally called for California to purchase the transmission grid owned by the state’s big private utilities in exchange for helping the debt-strapped companies survive.

Legislators saw state ownership of the power grid as a way to gain at least some control over a runaway electricity market by obtaining leverage over the suppliers that sell electricity to California. Burton, an early proponent of the concept, called it getting a hot dog for your dollar, which quickly became a political sound bite.

PG&E;’s bankruptcy filing has complicated that scenario, and may make it impossible for the state to acquire its part of the system. This has raised questions among legislators about whether the Edison deal alone--what Assemblyman Bill Leonard (R-San Bernardino) called “not even half a hot dog”--has any merit.

“The real question here is whether it makes any sense for the ratepayers to buy one-third of the transmission system,” said Sen. Debra Bowen (D-Marina del Rey). “Normally, if you buy one-third of a bridge, you get very wet. We feel that the ratepayers are already getting soaked.”

Another question being pondered by legislators is whether they need to keep Edison out of bankruptcy. Much of the focus in Sacramento has been on keeping the utilities from going to bankruptcy court, an outcome many legislators believed would have catastrophic consequences for California.

But after PG&E;’s decision to file for bankruptcy rather than continue negotiating with Davis on a state rescue--a move that embarrassed the governor--a growing group of legislators is rethinking that position. Some now believe a federal court may be a better place for Edison to sort out its problems.

“Regardless of who blinked first, the governor or PG&E;, the fact of the matter is he let them go bankrupt,” Perata said. “All these dire things that were initially predicted have not occurred.”

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Power Points

Background

The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state’s biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.

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Daily Developments

* The governor’s new chief energy advisor and perhaps the head of the state’s new power authority will be S. David Freeman, manager of the Los Angeles DWP.

* The Federal Energy Regulatory Commission has begun deciding whether to revoke energy producers’ right to sell to California at any price.

* State legislators returning from spring break voiced objections to the governor’s deal to buy Edison’s power lines for $2.76 billion.

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Verbatim

“If we are going to be in the business of building power plants and selling energy, he’s the man.”

-- State Senate President Pro Tem John Burton

on S. David Freeman

Complete package and updates at www.latimes.com/power