Senate’s Burton to Seek Takeover of Power Grid

As California’s utilities press a major federal lawsuit against the state to recoup billions in losses, the Senate leader on Friday said he intends to push for state control of the massive electricity transmission system in exchange for helping the utilities avert bankruptcy.

Senate President Pro Tem John Burton (D-San Francisco) said that by taking control of the transmission grid, California can hold down costs for consumers while gaining some control over private marketers of electricity.

In recent weeks, Gov. Gray Davis, Burton and various other lawmakers have struggled to agree on which utility assets to take in exchange for helping them get out of their financial straits.

Ideas range from an equity stake in the utilities to control of their hydroelectric plants and transmission lines. On Friday, Burton said he has settled on the transmission lines--with estimated worth between $3 billion and $4 billion--as a way of solving the growing crisis.

“That is ‘it,’ ” Burton said, describing the transmission lines as Senate Democrats’ price for helping the utilities avert bankruptcy. He said he will introduce the legislation early next week.

Davis spokesman Steve Maviglio said the governor also believes the utilities must be prepared to give up something of value in exchange for the state’s financial help.

“We’re continuing to make progress,” Maviglio said, adding that Davis sees Feb. 12 as the deadline.

Noting that any bill helping the utilities must pass the upper house, Burton said: “If the Senate doesn’t agree to a deal, there isn’t a deal.” A side benefit of taking control of the transmission lines might be to ease pressure from consumer activists to push an initiative restructuring the power market.

“If it is a fair price that makes sense to the state and benefits the ratepayers, it will be tough to pass an initiative,” Burton said.

Democrats hold large majorities in both houses, and Burton said any bill taking control of the transmission lines could be crafted so that it needs no Republican votes. On Friday, Assembly Republican leader Bill Campbell again said that GOP lawmakers oppose a state takeover of transmission lines.

“The state of California has no experience in managing high-voltage transmission lines,” Campbell said. “We would have to utilize scarce resources to expand those lines that could be used on schools, roads and waterways, and there are private sector companies that could do that much better.”

Southern California Edison and Pacific Gas & Electric expressed little enthusiasm for giving up any assets.

“We see no reason to change our position,” Edison spokesman Steve Hansen said. “We don’t want to surrender our assets.”

Burton shrugged at utilities’ opposition to giving the state their transmission lines, or other assets. “If they don’t agree to it, they can go get their money elsewhere,” he said, noting that the utilities are too broke to secure more loans. “They are not in the driver’s seat.’

On Friday, PG&E; and Edison defaulted on nearly all of a $684-million bill due to the California Independent System Operator, the agency that makes emergency purchases of electricity to balance the state’s transmission grid and avert rotating blackouts.

As a result, Cal-ISO informed power sellers that they will get just 2% of the money owed them by the utilities for electricity sold in November. The agency also asked electricity suppliers to commit in writing to serving California if called on in an emergency, regardless of whether they are being paid.

On Friday, Houston-based Reliant Energy, which supplies 5% of the state’s power, responded by filing documents in federal court in Washington, D.C., arguing that Cal-ISO cannot force the company to sell electricity to balance California’s grid without assurances that the company will be paid.

Reliant’s filing is not a lawsuit, merely a statement of its position, which it wanted to put on the record.

Adding to the pressure on Davis and lawmakers to exact some tangible asset from the utilities is the likelihood that consumers can expect to pay 19% more for electricity by early 2002 than they did a month ago, Burton and other lawmakers acknowledged Friday.

In making their calculations, lawmakers, who this week authorized the sale of $10 billion in bonds for electricity purchases, assume that a temporary 9% rate hike for residential users approved by the California Public Utilities Commission last month will become permanent.

Additionally, there probably will be what amounts to a second 10% rate increase in March 2002. When deregulation was approved by the Legislature in 1996, utility customers were given a 10% rate reduction, which is scheduled to expire in March 2002 and will likely not be renewed.

The Legislature and governor would have to take action to continue the 10% cut, and there has been no talk of taking such a step, said Assemblyman Fred Keeley (D-Boulder Creek), who carried the legislation earlier this week.

Davis and other lawmakers are rushing to settle the utility’s debt question by Feb. 12, when a federal judge in Los Angeles is scheduled to hear a lawsuit brought by Edison.

In its suit, Edison, joined by PG&E;, alleges that the PUC has unlawfully prevented the utilities from passing along to customers the soaring cost of wholesale electricity--an amount that could add hundreds of dollars to the bills of homeowners and renters.

In another development Friday, the state deepened its role as a power buyer when Davis used his emergency authority to seize contracts for power held by Edison. The move marks the first time that the governor has taken such an action, and it serves as a reminder of the utilities’ fragile financial condition.

The contracts will be in effect until the end of this year. They will ensure that at least one source of power remains in the state during the summer, when many experts fear there will be blackouts.

California Power Exchange executives sought to sell the contracts to cover a $215-million energy bill that Edison failed to pay on Jan. 18. The Power Exchange acts as a go-between, collecting money from electricity buyers and sending it on to the sellers.

Davis acted with 15 minutes to spare before a Los Angeles County Superior Court order would have expired and freed the Power Exchange to liquidate Edison’s contracts.

Davis acted under the Emergency Services Act, which allows governors to commandeer private assets “deemed by him necessary in carrying out the responsibilities invested in him as chief executive of the state.” Under that code, the state must pay the “reasonable value” of the assets seized.

The contracts’ fair market value will be determined by a court. Power Exchange officials have estimated their current worth at $651 million.

“This is no windfall for the state,” said Jesus Arredondo, spokesman for the Power Exchange, the market established by the state under a 1996 deregulation plan.

Edison attorney Henry Weissmann said the governor’s seizure “ensures reliable delivery of power, but they’re . . . going to have to pay for the value they’re getting.”

The electricity would be paid for by general taxpayer money. The state’s general fund would eventually be reimbursed when California begins selling revenue bonds to continue buying power.

Meanwhile, a key sticking point between Edison and four big electricity co-generators appeared to have been resolved on Friday when an agreement was reached over how the suppliers could go about purchasing natural gas.

Co-generators earn their title because they take a single fuel source such as natural gas and use it to produce multiple forms of usable energy such as electricity and steam.

Co-generators are among the alternative energy producers that provide about 9,000 megawatts of electricity to the state’s utilities, making them one of the biggest power suppliers in California.

The agreement slashes by more than half the amount that PG&E; and Edison pay for a kilowatt-hour, from 17 cents to roughly 7.8 cents, for alternative energy. The development paves the way for the long-term agreements reached by the utilities and the alternative energy suppliers to move forward.

Alternative electricity producers have taken a beating because utilities have been unable to pay them, thus forcing some to end operations. Wellhead Electric Co., for example, stopped sending PG&E; 58 megawatts on Thursday after PG&E; told the firm that it would be able to make only partial payment for December operations.

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Times staff writers Miguel Bustillo, Nancy Rivera Brooks and Julie Tamaki contributed to this story.