Legislation Would Give State a Stake in Private Utilities

Assembly Speaker Bob Hertzberg on Thursday unveiled legislation that would give the state what amounts to a stock ownership interest in private utilities and let them pay off their multibillion-dollar debt with ratepayer money.

Activists denounced the measure as a bailout. Some lawmakers warned that it could lead to rate hikes--something Gov. Gray Davis adamantly opposes.

The bill, AB 18X by Hertzberg and Assemblyman Fred Keeley (D-Boulder Creek), is among the most far-reaching measures to emerge from the churning crisis, which has led to blackouts and threats of bankruptcies by utility giants Southern California Edison and Pacific Gas & Electric.

The measure is sure to be rewritten as it goes through the legislative process. But, as introduced, it could authorize the state to take possession of assets such as hydroelectric plants or transmission lines owned by Southern California Edison and Pacific Gas & Electric Co.

It would also allow the utilities to pay down their debt with a portion of the amount their customers are charged. To accomplish this, rates would remain fixed at current levels even if the utilities’ costs dropped in the future,

Attempting to underscore the seriousness of California’s energy crisis, Hertzberg told lawmakers who held a hearing on the measure Thursday that the potential insolvency of the utilities and the power disruptions threaten the whole state.

“The California dream of a better life is in danger if we do not immediately move to return stability to our power supply,” he said. “Without stable, reliable, affordable energy, our state’s economic engine will almost certainly falter.”

Critics agree that the state is in perilous condition but complain that Hertzberg’s bill picks the public pocket.

“It is the most appalling piece of legislation I have ever seen,” said lawyer Mike Florio of the Utility Reform Network and a Davis appointee to the newly reconstituted board that oversees California’s power grid. “This is a complete and total bailout to the last dime. This is an absolute capitulation to the utilities.”

The legislative flurry came while California’s shaky electricity grid lurched into a 10th day under a Stage 3 emergency, meaning that electricity reserves were less than 1.5%. But no blackouts were declared, and state power officials expected the situation to improve today.

Although partisan and philosophical differences seem to accompany every proposal for a way out of the state’s deregulation mess, support is growing among Democrats and Republicans for a plan that would give the state warrants in the utilities, similar to stock options.

Once the utilities regained financial stability, the state could cash in the warrants and perhaps provide rate reductions for utility customers. The federal government exacted a similar price in exchange for bailing out Chrysler Corp. 20 years ago.

Los Angeles attorney Ronald Olson, who represents Edison and is on its board of directors, sees a “disconnect” between Hertzberg’s proposal and a lawsuit filed by the utility in federal court in Los Angeles. The suit seeks an order compelling the state to permit Edison to collect the full cost of delivering power. A hearing on the suit is set for Feb. 12. PG&E; filed a similar lawsuit Thursday in San Francisco.

“We believe federal law requires that we be allowed to recover our procurement costs,” Olson said, adding that the utility should not be expected to give up assets or warrants “to obtain something we believe federal law requires.”

Meanwhile, a day after 39 private power suppliers submitted bids to sell power to California, Davis remained optimistic that the state will be able to buy power at a price that will not send rates higher. He said he expects to sign long-term contracts with private power companies within 10 days.

State Department of Water Resources officials continued to review the bids, and S. David Freeman, head of the Los Angeles Department of Water and Power, was in Sacramento at Davis’ request to assist.

“We’re going about this with a very serious sense of urgency,” Freeman said, while adding that it could take several weeks to negotiate final deals. “It is in the interest of the entire state of California, including Los Angeles, that we obtain the electricity at the lowest possible price.”

A state Senate committee, by a 6-2 vote, approved legislation authorizing the state to enter the electricity business and remain in the industry for years to come, a step unprecedented in California history. The full Senate is expected to vote on the bill as early as Monday.

The hearing on the bill, also by Keeley, turned testy when consumer lobbyist Lenny Goldberg, representing the Utility Reform Network, said the measure would probably head to a Senate-Assembly conference committee, where it could be rewritten to become what he characterized as bailout legislation for Edison and PG&E.;

“They are going to jam ridiculous, grotesque bailout language down our throats,” Goldberg contended.

Keeley responded that he was not aware of any tactical plans that Hertzberg or Senate President Pro Tem John Burton (D-San Francisco) might have in mind for his bill.

State Sen. Debra Bowen (D-Marina del Rey), who vowed to oppose any major overhaul of the bill, did concede that Goldberg “has a valid concern” that ratepayers might end up propping up the utilities.

“[Goldberg] has good reason to be concerned,” she said.

State Sen. Tom McClintock (R-Northridge) said the way to increase the supply of electricity is obvious. The state must allow construction of the long-stalled Auburn Dam on the American River, an idea that environmentalists and others have blocked, and revisit the issue of nuclear power plant construction. Perhaps, he said, the state should help finance them.

“If we are serious about protecting the environment,” McClintock said, “we cannot ignore the potential of hydro and nuclear power. . . . We adopted this radical notion that if we stopped building [power plants], people would stop coming to California. Guess what? People kept coming.”

From the left, Sen. Martha Escutia (D-Whittier) introduced a bill that seeks protection from rate increases for residents, farmers, schools, and businesses that consume moderate amounts of electricity. Large industrial and commercial users would have the option of paying higher rates or negotiating their own contracts with power producers.

Escutia, backed by other consumer advocates, said that unlike large energy consumers, individuals did not ask for the 1996 legislation that opened the way for deregulation of the electricity system.

“The core customers protected by this bill are those who did not ask for deregulation and yet have had to bear the greatest burden of skyrocketing rates and power outages that they cannot afford,” Escutia said.

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Times staff writers Nancy Rivera Brooks, Carl Ingram and Nancy Vogel contributed to this story.

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The State’s Options

As it wrestles with a way to rescue the state’s two largest utilities from bankruptcy, the California Legislature has come up with a number of possible concessions that lawmakers would demand of the utilities in return.

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The options include:

* WARRANTS: The state would retain the right to buy utility stock at a favorably low price, similar to stock options in the private sector. Once the utilities get back on their feet and stock prices increase, the state could cash in the warrants and return them to taxpayers as rebates.

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* HYDROELECTRICITY: The state would either seize or purchase the massive hydroelectric systems of PG&E; and Southern California Edison. This would give the state control of a cheap power source and all of its components, including more than 100 dams and reservoirs. If the state decides to purchase these assets, it would give the utilities money to pay off their creditors.

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* POWER GRID: The state would take over or purchase the web of transmission lines for both PG&E; and Southern California Edison. Again, a purchase would provide the utilities billions of dollars for debt repayment. It would also allow the state to expand the overburdened transmission lines.