Consumer Advocates Urge State to Buy Grid

With momentum building in the Capitol for a utility rescue plan that would give customers of Southern California Edison and Pacific Gas & Electric stock ownership, consumer advocates on Saturday made a pitch for what they call a better alternative: public purchase of the utilities’ transmission grid.

The grid--essentially all the wires, transformers and equipment that carry power to homes and businesses--is valued at more than $3 billion.

“Transmission is what we see as the only viable solution,” said Nettie Hoge, executive director of the Utility Reform Network.

Also on Saturday, the state remained in a Stage 3 alert--meaning electricity reserves were in danger of slipping to less than 1.5%--but grid operators said they did not believe blackouts would be necessary. Against the power emergency backdrop, Hoge and several other consumer advocates met in the Capitol with lawmakers and officials of Edison and PG&E; and explored three scenarios for what consumers might get in return for helping to restore the utilities’ financial health.

Ideas include stock warrants, through which ratepayers would get a stake in the value of the utilities; state ownership of the utilities’ hydroelectric assets; and state takeover of the electrical grid.

On Friday, Davis endorsed a plan in which the state would receive warrants in PG&E; Corp. and Edison International, the parent companies of the state’s two largest utilities, in exchange for state help in easing their multibillion- dollar debt.

A warrant is a security functioning like a stock option, allowing the holder to buy a specified number of shares at a set price.

If the price of the stock rises beyond the price set by the warrant, the holder can profit from the difference. While the stock price remains below the warrant’s value, the holder gets nothing.

But consumer advocates and utility executives are wary of the idea, for different reasons. PG&E; and Edison argue that they have the right to pass all of their past costs for electricity purchases to consumers and should not be forced to give up shares in their companies in return.

Consumer advocates call stock warrants speculative and say they create a conflict of interest for consumers. “The only way stock value of these companies is going to rise,” Hoge said, “is if there is a big rate increase.”

Hoge’s group would prefer that the state pay the utilities for their electrical transmission system.

Experts value the aging grid at $3.2 billion, she said, but the savings that could be achieved through public ownership would warrant giving the utilities $6 billion to $7 billion, Hoge said, enough to help eliminate some debt.

Putting into public hands the grid now owned by Edison, PG&E; and San Diego Gas & Electric would clear the way for fast, badly needed expansion that could be paid for through funds borrowed at cheaper rates than the utilities could achieve.

It would lift California out of some of the oversight by the Federal Energy Regulatory Commission, Hoge said, and it would set the stage for better cooperation with California’s municipal utility districts.

The money to purchase the grid could be raised through bonds.

Publicly owned utilities, such as the Los Angeles Department of Water and Power, opted not to deregulate under the state’s 1996 plan. As a result, they maintained control of their transmission system and power plants and, in many cases, have surplus electricity.

Edison, PG&E; and SDG&E;, on the other hand, were forced to buy power in a competitive market in which prices soared to phenomenal levels last year.

The people hashing out these issues Saturday said they did not expect to reach agreement this weekend. However, time is running short.

The utilities, which have already defaulted on payments of hundreds of millions of dollars to power sellers, must make additional payments next week or face the increased risk that creditors will force them into bankruptcy court.

Those creditors include small alternative energy producers that supply the utilities with roughly one-third of their power.

The utilities and the small producers have been working to craft an agreement that would cut by half what utilities must pay.

Rough agreement has already been reached with the hundreds of small producers that supply PG&E.; On Saturday, the producers under contract to Edison moved closer to agreement.

The producers offered to seek long-term contracts for their natural gas supplies, which would reduce the cost of electricity.