Davis to Propose Ratepayer Surcharge

By DAN MORAIN and NANCY VOGEL

Feb. 16, 2001 12 AM PT

TIMES STAFF WRITERS

SACRAMENTO —

Gov. Gray Davis today will announce a rescue plan for the state’s private utilities that would add an extra charge to monthly power bills and pay the companies billions of dollars in exchange for their massive high-voltage transmission system.

The plan, designed to stabilize California’s troubled electricity system, would give the financially hobbled companies two new sources of revenue as a means of restructuring their debt, which they estimate to be almost $13 billion.

Many elements of the rescue plan have already been debated widely. But today’s planned announcement marks the first time that Davis himself will spell out his proposed solutions.

Aspects of the plan have gained tentative support from key Democrats, some of whom had expressed impatience about the governor’s lack of a remedy until now.

“I’m trying to make sure that whatever help they get, we get value back in return,” state Senate President Pro Tem John Burton (D-San Francisco) said of the utilities. “It has to be a fair transaction.”

Executives at Southern California Edison were taken aback by several points in the plan. Pacific Gas & Electric executives declined to comment.

“Some of these items are very difficult for us,” said Bob Foster, Edison’s executive who oversees governmental affairs. “We really need to have a discussion to understand them further.”

Under the plan, Edison and PG&E; would sell private bonds and gain state approval to repay the bond debt by adding a special charge to monthly utility bills--which critics immediately branded a rate hike for customers.

If Davis succeeds in persuading the utilities to sign on to the plan, and wins legislative approval, there would be a new line item on bills--a so-called “dedicated rate component” reflecting the utilities’ cost of paying off their bonds.

It is unclear whether the plan would raise the monthly bills for Edison and PG&E; customers or how much the increase might be. Davis has said repeatedly that he hopes to navigate the energy crisis without hikes beyond a 9% residential rate increase imposed last month. A probable 10% increase will occur next year when a rate cut imposed by the Legislature in 1996 expires.

While the dedicated rate component could raise bills, another part of the plan would drive down costs by requiring utilities to sell power from their generators to Californians for the next 10 years at prices far below current costs.

The draft plan, which could change by the time it is released today, also includes provisions that would ensure protection of environmentally sensitive land owned by the utilities.

The state also would require that the utilities drop lawsuits against it and that the parent corporations refund to the utilities tax money Edison and PG&E; overpaid last year. PG&E;’s parent has said its utility subsidiary will refund $500 million to $1 billion, and Edison’s parent expected to refund $500 million to the utility.

Davis spokesman Steve Maviglio, while declining to discuss specifics, said the Democratic governor’s long-awaited proposal would “keep utilities solvent and give ratepayers an asset in return.”

“It’s a buyout, not a bailout, as the governor likes to say,” Maviglio added. “It’s a framework for recovery.”

The total price for the rescue plan is unknown. The sum the state would pay for the 32,000 miles of transmission lines would be left to negotiations among Davis and utility executives. However, the proposal says the state would pay “market value” for the transmission grid--and that could be $9 billion.

Davis intends to meet with utility executives today at the Capitol before unveiling the plan publicly later in the afternoon. The governor’s aides were briefing key Democratic lawmakers Thursday night.

Republicans, who oppose a state takeover of the massive system of high-voltage transmission lines, attacked the plan. Sen. Jim Battin (R-La Quinta) said the proposal to grant the utilities a “dedicated rate component” on people’s bills to pay off their bonds, along with a recently enacted bill that allows the state to purchase power, might result in rate hikes.

“I think people will see rates go up,” Battin said. “It’s not something I support.”

Consumer advocates also voiced skepticism. Michael Shames, executive director of the Utility Consumers’ Action Network in San Diego, said the governor’s willingness to allow utility rates to be high enough to help the companies recover their past costs “raises red flags.”

“It isn’t an element that causes us to blanch--yet,” he said. More details are needed about what the utilities’ future costs for power might be, Shames said. “It is going to cause consumer groups to be concerned.”

Harry Snyder of Consumers Union called the governor’s proposal to allow the utilities to float revenue bonds backed by their customers’ rates “an obnoxious feature.” Snyder said the provision would allow utilities to shut off people’s power “because you chose to protest paying off their bad debts” by refusing to pay the “dedicated rate component.”

The state would finance the grid’s purchase by selling revenue bonds. Consumers would see the cost of the purchase reflected in a separate line-item charge on their utility bills, which would replace the transmission charge that already is on utility bills. The purchase of the grid would give utilities an infusion of cash to pay down their debt.

The proposal says the state would contract with the utilities to operate the grid. Bills to create a state public power authority, and to allow Davis to negotiate the purchase of the grid, passed the Senate Appropriations Committee on Thursday and are expected to be voted on by the full Senate next week.

Edison Chairman John Bryson has said he is willing to discuss the sale of the company’s transmission system. PG&E; Chairman Robert Glynn, however, has called the grid integral to his company’s business, likening the potential loss of the system to denying supermarkets the right to sell milk.

The state already intends to sell $10 billion in bonds to finance its purchase of power that utilities can no longer buy because of their debt.

“It would seem to me,” said Sen. Battin, “that we are getting to the point where we could be diluting the value of the bonds because we are issuing billions and billions of dollars in bonds immediately.”

In one of the most significant pieces of the plan, Davis is seeking to require that the utilities hold on to their remaining power plants for a total of 10 years, and sell power from the plants within the state at their cost, about 3.5 cents per kilowatt-hour.

If Davis can convince Edison and PG&E; to agree to that, the saving would amount to almost $6 billion over the 10-year term, assuming, for example, that the companies otherwise would raise rates to 6.5 cents per kilowatt-hour, experts who have analyzed the plan say.

“It is a well-balanced proposal for helping resolve the major issues of credit-worthiness for the utilities and offers substantial values to consumers, and to Californians generally,” said Assemblyman Fred Keeley (D-Boulder Creek), who had been pushing for state control of the utilities’ hydroelectric plants.

In another major component, the state would gain “conservation easements” to the utilities’ watershed land, estimated at 165,000 acres. Much of the land is in the Sierra Nevada and other environmentally sensitive areas.

“We’re hopeful that as part of this unfortunate mess we’re all in, additional protection for Sierra lands controlled by PG&E; and to a small degree by Edison will be one of the outcomes,” said Thomas J. Graff, senior attorney with the Environmental Defense Fund in Oakland.

Environmentalists began a serious push in late December to have the state take over the land, much of it along rivers and heavily wooded with old-growth trees, as part of any plan to give financial help to Edison and PG&E.;

Graff said a straight sale of the property to the state would be “more reassuring.” But he welcomed Davis’ proposal to protect the land in some manner. A conservation easement would provide protection even if the utilities sold the watershed.

The plan comes as electricity reserves in California remain perilously low. On Tuesday, Wednesday and Thursday, grid operators warned PG&E; and Edison to be ready to trigger rotating blackouts.

Officials with the California Independent System Operator said they could not explain exactly why imports to the state have lagged so much in recent days, except that storage in key reservoirs used for hydroelectric generation is at 60% of normal.

California power plant owners under court order to supply Cal-ISO when necessary to stabilize the vast transmission grid are doing so, said Kellan Fluckiger, chief operations officer at Cal-ISO.

But power generators owed hundreds of millions of dollars by Edison and PG&E; are growing impatient for action by the Legislature and governor to prop up the utilities. Out-of-state generators have no legal obligation to keep selling power to California, and those based in the state are increasingly frustrated by the state’s refusal to back all of Cal-ISO’s purchases of power with taxpayer funds.

They fear that the cost of emergency power will be billed to the utilities, which say they are nearly bankrupt, and never be paid.

Reliant Energy of Houston, for example, figures that it has supplied Cal-ISO with $40 million to $50 million worth of power since Jan. 20 with no guarantee of payment. The bill increases by at least $2 million a day, said Reliant spokesman Richard Wheatley.

On Wednesday, a Reliant power plant in Ventura County shut down after a voltage spike knocked out the control system. That plant is capable of supplying 215,000 homes. Repair crews worked through the night but could not get the unit running by Thursday afternoon, Wheatley said.

On Thursday morning Reliant shut down a second plant in Ventura County to avoid violating federal and local air pollution rules, he said. That plant supplies enough power for 150,000 homes.

Cal-ISO officials quickly reached an agreement with Ventura County air pollution officials under which Reliant can run that plant when the state’s electricity reserves are at 3% or less, as they were for a period Thursday afternoon. Without that agreement, Wheatley said, the plant might have been shut down for the rest of the month.

“It is a very difficult situation we and other generators are in,” he said. “ . . . We’re being forced to supply needed power to the state of California with no assurances of being paid for sales of that power, now or in the past.”

Times staff writers Jenifer Warren, Carl Ingram and Miguel Bustillo contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Energy Plan Highlights

Key elements in the draft of Gov. Gray Davis’ energy plan:

The state would:

* Buy the transmission grid for market value (estimated at

$5 billion to $9 billion).

* Authorize revenue bonds to finance improvement of the grid.

* Direct the Public Utilities Commission to transfer a portion of transmission-rate revenue from the utilities to the state.

* Authorize the Department of Water Resources to set wholesale electricity transmission rates and tariffs.

* Direct the PUC to add a charge to electric bills to help pay off the utilities’ debt to electricity generators.

* Authorize the utilities to sell bonds secured by the added charge.