Davis Vows Plan for Edison, PG&E;

Gov. Gray Davis said Monday he and legislative leaders would have a plan by week’s end to avert the bankruptcy of the state’s two biggest utilities by trading ratepayer-backed bond money for utility assets.

“The drop-dead date is clearly Feb. 12,” Davis said. That is when a federal judge is set to hear a lawsuit by Southern California Edison, joined by Pacific Gas & Electric, that could lead to sharp rate hikes for consumers unless a rescue plan is in place.

Momentum has been building for a plan in which the state would get control of the utility transmission lines in return for issuing bonds to give the utilities a cash infusion.

But Senate President Pro Tem John Burton (D-San Francisco), who argues that California should take control of the transmission grid, said he did not share Davis’ urgency to cut a deal this week.

The wrangling comes as the state faces the end early Wednesday of what likely is the last federal emergency order requiring that independent power generators sell electricity in California. The Bush administration insists it will not extend the order.

“We’re not even asking,” Davis spokesman Steven Maviglio said.

Several such orders issued in the past two months have forced power generators to keep electricity flowing to California, even though Edison and PG&E; were unable to pay the skyrocketing wholesale costs of electricity.

But the federal emergency orders are less vital now that California has relieved the utilities of having to buy power--at a cost to taxpayers of roughly $45 million a day.

Davis, meanwhile, plans to announce today that California has entered into its first long-term contracts to buy power from independent generators, thereby beginning its shift away from the reliance on spot markets.

At least one firm, Calpine Corp., was on the verge late Monday of signing a deal to provide the state with up to 1,000 megawatts for roughly 10 years. One megawatt is enough to serve roughly 1,000 homes. The cost could not be determined, but it is believed to be slightly above the 5.5 cents per kilowatt-hour that Davis had hoped for.

“Clearly, we are no longer waiting for someone else to solve our problem or do something to bail us out,” Davis said at a Capitol news conference Monday.

“We are doing everything within our power as a state to right this ship. We’re not waiting for someone to throw us a long pass. We’re going to solve it ourselves.”

Davis said he will confer with Democratic and Republican legislative leaders this week to resolve the complex and controversial issue of providing “a cash infusion to the utilities so they can be viable,” in exchange for utility assets.

The Democratic governor said he is not sure how the state will help the financially hobbled companies. It may sell bonds, or guarantee bonds that the utilities might sell.

Either way, the bonds would give the utilities cash to help them pay down their debt, estimated at between $6 billion and $12 billion.

“It cannot be done without assistance from the state,” Davis said.

Though Burton favors taking over the transmission grid, Davis supports taking equity stakes in the companies themselves in the form of warrants, similar to stock options. The warrants could be cashed in after the utilities regain their stability and used to lower the cost of electricity for consumers, or to soften future rate hikes.

“That state assistance, no matter what form it comes in, has a value,” Davis said. “It is my goal to make sure that whatever the state receives in return has comparable value.”

Davis signed legislation last week allowing the state to sell an estimated $10 billion worth of bonds to buy power in the future. The bonds would be purchased by investors, who would be repaid over time by the ratepayers.

By selling bonds, the state in essence will be subsidizing consumers for the high prices of electricity in the first year or two. But consumers will pay higher prices in later years when the cost of electricity is likely to drop as more power plants are built.

In addition to selling bonds to pay for power in the future, Davis said, the state likely will sell bonds to help the utilities defray the past cost of power.

State Treasurer Phil Angelides, who will oversee the bond process, said in an interview that the state had little choice but to sell bonds for future power purchases. But he said resolving the “past debts of the utilities” is a tougher problem.

“There is no magic money here. Bonds require a repayment source,” Angelides said. “It needs to be a buyout versus a bailout.”

The Democratic treasurer said that only after coming up with their own reorganization plan should the utilities seek state assistance.

“At the end of the day, if there are some assets of value that we are interested in as a buyer . . . that should be on the table.”

Edison and PG&E; have run up billions in debt in recent months as they paid record high prices for wholesale power, yet were unable to pass on the full cost of it to consumers.

On Monday, a federal judge in Los Angeles is scheduled to rule on Edison’s suit alleging that the California Public Utilities Commission must allow the utilities to pass on the multibillion-dollar cost of buying power.

Assemblyman Fred Keeley (D-Boulder Creek), among the lawmakers most involved in the Legislature’s response to the energy crisis, said that if utilities win the suit and are allowed to pass on the full cost of their power purchases, consumers could be hit with an 86% rate increase.

“I don’t think we can roll the dice and let that happen,” said Keeley, who along with Assembly Speaker Bob Hertzberg (D-Sherman Oaks) has been pushing for an early settlement of the Edison lawsuit.

However, Burton, the Legislature’s most influential member, shrugged off the Monday deadline.

“Trial courts rule. Appellate courts rule. Supreme Courts rule, and it’s three or four years down the road,” Burton said.

In other developments Monday:

* Davis again used his emergency authority to claim $150 million worth of contracts held by PG&E;, shortly before they would have been taken by one of the utility’s creditors.

PG&E; had defaulted on payments to the California Power Exchange, and the entity, a sort of commodities market for electricity, wanted to auction off the contracts. Davis took similar action with Edison contracts Friday.

The PG&E; contracts will supply between 100 and 500 megawatts of electricity for the remainder of 2001. The price of the power will be determined in proceedings before the state Board of Control. But the state may find itself paying significantly more than the relative low prices specified in the contracts.

* Edison revealed that one of its bank accounts was seized last month by a creditor, General ReFinancial Products Corp., which contends it is owed $8.8 million for early termination of a financial arrangement during the utility’s debt crisis.

Edison said in a filing with the U.S. Securities and Exchange Commission that it has asked the federal court that gave the creditor permission to attach the account to reverse course and stop the action. The account, with a New York bank, contains $1.5 million, Edison said.

Edison noted in the same filing that it had $1.36 billion in cash on Monday, but has defaulted on several million dollars’ worth of debt payments and has “deferred” payments totaling $743 million through Monday to electricity suppliers.

If the Rosemead utility had made all of its debt and electricity payments as they came due, it would have run out of cash last Friday, Edison said. In contrast, its parent company, Edison International is paying all of its bills.

* Shares of Edison International rose 22 cents to close at $13.23 per share Monday and PG&E; Corp. fell 14 cents to close at $13.60 per share. Both trade on the New York Stock Exchange.

Standard & Poor’s, a large credit rating agency, reaffirmed that California’s strong rating remains on its “Credit Watch Negative” list following Thursday’s passage by the Legislature of a bill giving the state Department of Water Resources $500 million more to buy electricity for the state.

California’s general obligation bonds carry a rating of double-A.

* S&P; also downgraded to “D”--or junk-bond level--the “issuer credit rating” of the California Independent System Operator, reflecting the fact that the utilities are no longer paying their electricity bills.

The downgrade does not affect any operating funds of Cal-ISO, which are generated by transmission fees, and does not include debt issued by the state for Cal-ISO, which retains “insured triple-A” and “A-1 plus” ratings.