Davis Turns to Bankruptcy Court for Help in Plan to Buy Power Grid

Foiled in his first attempt to buy Pacific Gas & Electric’s transmission grid, Gov. Gray Davis said Monday that he has tried a new tactic: bypassing the company and attempting to build support for the deal in Bankruptcy Court.

Davis’ plan to buy the grid appeared to have ended disastrously last month when the giant utility filed for bankruptcy protection. But Davis said his advisors now are trying to sell the idea to a committee of PG&E; creditors that hold a stake in the utility’s Chapter 11 proceeding.

The creditors committee, representing the hundreds of companies owed money by PG&E;, does not by itself hold the power to accept or reject the deal, which Davis sees as a key to his plan to restructure the state’s crippled electricity system. But the committee will play an important role in any reorganization plan that is ultimately hammered out in U.S. Bankruptcy Court.

Given that power, Davis sent advisors to brief the committee last Wednesday. The advisors told the committee about the deal they struck with Southern California Edison to buy its share of the statewide transmission grid, and the similar deal that PG&E; rejected.

“I’m not saying they embraced it entirely,” Davis said, after speaking at a conference of technology entrepreneurs put on by the J.P. Morgan investment bank. “But they liked parts of it, asked good questions, and I thought it was a good beginning.”

Paul Aronzon, the lead lawyer for the creditors committee, stressed that the meeting with Davis’ advisors would not lead directly to a deal. The governor’s representatives “did not come out and say, ‘Would you guys sell us the transmission grid?’ ” he said. Rather, Aronzon said, the advisors simply brought the creditors up to speed on what Davis has put on the table.

Davis has offered more than $7 billion to buy the transmission systems of Edison, San Diego Gas & Electric and PG&E.; So far, only Edison has accepted the deal. The cash infusion would help the utilities restructure their debts, and ultimately relieve the state of the need to continue buying electricity on their behalf.

The Davis administration made public Monday its most detailed breakdown yet on the costs it expects to incur purchasing electricity over the next years.

However, the extra information failed to satisfy Republican lawmakers, who are holding up legislation needed to repay the state budget for the billions already spent on electricity.

California will spend $15 billion buying power this year, according to projections by Davis’ advisors.

But that total will drop to $9 billion next year and $7 billion the next as long-term electricity contracts, energy conservation efforts and new power supplies combine to lower the state’s costs.

With money from higher electric rates and a planned $12.5-billion bond, the state should be able to cover the costs of power and operate at a surplus starting in November 2002, the administration projected.

Several Republicans took note of the date: It is the month of the 2002 gubernatorial election, when Davis is expected to seek a second term.

The figures were based on a dizzying number of assumptions about the state’s energy future. The projections assume, for example, that Californians will reduce energy consumption by 7%, and that 90% of the state’s alternative energy producers will soon generate electricity again. Now only about 65% are online.

Davis administration officials defended the figures, saying that they were conservative.

The reaction to the figures reflects a growing rift between Democrats and Republicans over how best to solve the state’s problems. Efforts have been lurching unsteadily on several fronts, including the courts, the state Legislature and Congress, with considerable political head-butting taking place in the last two.

In Washington today, a key congressional panel is expected to take up emergency legislation intended to help California, although Davis and other Democrats have criticized the effort as useless.

The bill’s 19 provisions would, among other things, provide federal aid to relieve a bottleneck in the state’s transmission system, permit governors to obtain temporary waivers of environmental rules to boost power supplies, and direct federal disaster officials to help California prepare for blackouts.

A spokesman for Davis said the Republican-drafted legislation offers “a lot of things we don’t need, and fails to address the one thing we do need,” namely firm price controls on wholesale electricity sales.

Democrats and Republicans have strong, fundamental disagreements about how best to solve the crisis, with Democrats supporting price controls, if only temporarily, and many Republicans, including President Bush, opposed to tampering with the market.

Several Democrats who attended a White House ceremony Monday to mark Bush’s first 100 days in office spoke briefly to the president about the energy situation.

“He was not very sympathetic,” said Rep. Bob Filner (D-San Diego), an advocate of price controls. “They have their minds pretty well made up.”

In one effort to seize the initiative, a divided state Senate Appropriations Committee approved a bill Monday that would impose a windfall profits tax on electricity sellers who gouge California consumers. Revenue from the tax would flow back to Californians in the form of a credit on their state income taxes, starting next April 15.

“Our backs are to the wall,” said one sponsor of the bill, Sen. Jack Scott (D-Altadena). “We believe that this is one time when we can stand up to an avaricious energy generator and say, ‘No more.’ ”

On a 7-3 vote, Democrats on the committee voted for the bill, SB1X, and Republicans lined up against it. The measure moved to the Senate floor, where it will require only a simple majority of 21 votes and is expected to pass.

Davis has said he is open to signing a windfall profits bill, but he has not publicly lobbied for its passage.

Also Monday, legislation was introduced in the Assembly to bolster natural gas supplies in the state. Tight supplies have led to soaring costs for natural gas, the fuel most commonly used to generate electricity in California.

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Morain reported from San Francisco and Simon from Washington. Times staff writers Miguel Bustillo, Carl Ingram and Julie Tamaki in Sacramento, Tim Reiterman in San Francisco and Mitchell Landsberg in Los Angeles contributed to this story.