Pressure Is on Utilities to Accept Grid Sale

His credibility at risk and California’s energy future on the line, Gov. Gray Davis on Thursday turned up the heat on the state’s utilities to accept today a series of tentative rescue accords that would put the companies’ transmission systems into public hands.

How far the utilities are willing to bend to the governor’s intensified pressure was unclear late Thursday. Given Davis’ mandate, a top executive of Southern California Edison said his company is now being forced to seriously contemplate whether it might fare better in Bankruptcy Court.

“We are weighing two very unpalatable alternatives,” he said.

Two alternatives facing the utilities are either to sell their electrical transmission systems to the state at a price they consider too low or gamble in Bankruptcy Court that they could hang onto their valuable assets.

After nearly a week of negotiations, Davis administration officials said they hoped to announce today a partial deal that would calm the utilities’ jittery creditors and help subdue California’s runaway electricity market.

State officials said Thursday they were close to agreements with Edison and San Diego Gas & Electric but remained at odds with the state’s biggest utility, Pacific Gas & Electric, which has balked at giving up its transmission grid.

“These are complex issues that cannot be resolved overnight,” said PG&E; spokesman Ron Lowe. “There are clearly some areas where we are very far apart.”

On Thursday, Edison Chairman John Bryson conferred with members of his utility’s board of directors. But by evening, the company’s top executives still had not decided whether to acknowledge that an agreement is near.

Although the utility has begun to contemplate the protections of bankruptcy, it is unclear when, or if, such a dramatic action would occur.

Davis is believed to be offering roughly $7 billion for the utilities’ transmission grids. The companies could use the cash to restructure their debt, which resulted from the utilities’ inability to pass along their soaring wholesale electricity costs to ratepayers.

Davis has significant political and fiscal reasons for wanting to make an announcement today. He is scheduled to arrive in Washington for the National Governor’s Assn. conference this weekend, meet with U.S. Energy Secretary Spencer Abraham on Sunday, and attend the Democratic Governors Assn. annual fund-raising dinner Monday night.

Davis, a prodigious fund-raiser, is chairman of the Democratic Governors Assn., and the dinner is expected to raise more than $5 million. Of that amount, Davis’ political organization raised in excess of $1 million, said Garry South, his chief political advisor.

Any progress Davis can cite could help improve his national political standing. But his aides say it’s especially important to be able to show at least a semblance of an agreement when he travels to New York on Wednesday to confer with Wall Street analysts.

On Thursday, those analysts reacted exuberantly to early hints from the governor’s office that settlements with the utilities might be announced.

The recently anemic stocks of Edison International and PG&E; Corp. soared on the New York Stock Exchange on a day when most utility stocks closed lower.

Edison jumped $1.50 per share, or 11.15%, to close at $14.95 while PG&E; gained $1.49, or 11.41%, to $14.55 per share.

“That suggests that someone thinks something good is happening in Sacramento,” said analyst James D. von Riesemann of Morgan Stanley Dean Witter & Co.

But some analysts fear investor enthusiasm might be hasty.

“I’m concerned that the governor’s optimism may not coincide with all the parties at the table and it may not coincide with the Legislature,” said Paul Patterson, utility analyst at Credit Suisse First Boston Corp.

Davis met Thursday with Steve Baum, chairman of Sempra, the parent company of SDG&E.; Administration officials are confident that an agreement can be reached. But the San Diego company is the smallest of the state’s three major private utilities, and its debt is far smaller--$605 million, compared to the combined $12.7 billion that Edison and PG&E; say they have amassed.

“[Baum] is willing to listen,” said Sempra spokesman Doug Kline. “ . . . We’re on the record as stating that we are willing to consider the sale of those [transmission] assets if it helps solve the crisis.”

PG&E; executives had been scheduled to start meeting with Davis at 11 a.m. Thursday. But in what was seen a slight against PG&E;, Davis’ aides did not summon negotiators for the Northern California utility, including company Chairman Robert Glynn, until after 3:30.

Although the parties continued to wrangle over details, there was progress Thursday on the sidelines.

State officials announced they had signed a long-term contract for a relatively small amount of electricity with a major energy supplier--an achievement that was perhaps more symbolic than substantive.

Tulsa-based Williams Cos. said it had agreed to a 10-year deal to sell power to the Department of Water Resources. By April, the company will provide at least 175 megawatts--enough electricity to supply 175,000 homes--at times of the day when demand for electricity soars. Such peak supplies will increase through next summer and reach 900 megawatts by 2006, according to Williams.

The agreement is only the second such long-term contract since Davis signed a bill Feb. 1 putting the Department of Water Resources into the power-buying business for many years to come.

At least 10 other power suppliers have reached understandings with the state, Davis said Wednesday. But those companies refuse to sign deals, the governor said, until the state finds a way to help California’s two biggest utilities pay off their billion-dollar debts.

“As soon as we revitalize the utilities,” the governor said, “I think you’ll see a lot of movement on long-term contracts.”

Another small but important piece of the state’s energy plan emerged Thursday when legislation was introduced by Sen. Jim Battin (R-La Quinta) to slash the rates paid to alternative energy producers--a move expected to shave $3 billion or more in annual costs charged to the big private utilities. Reducing the amount paid to producers of renewable energy such as solar, wind and biomass power is considered a crucial step in keeping expected consumer rate hikes down.

And, after 40 days of dangerously low electricity supplies, the state got a reprieve Thursday morning when grid officials lifted the state’s “electrical emergency” status for the first time since Jan. 13.

So far, the state has spent nearly $2 billion buying electricity on behalf of the utilities, according to the Department of Finance, which informed the Legislature on Thursday that it will release another $500 million for electricity purchases.

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Times staff writers Nancy Rivera Brooks, Nancy Cleeland and Mitchell Landsberg in Los Angeles and Julie Tamaki and Jenifer Warren in Sacramento contributed to this story.