State Agrees to Buy Power From Sempra
Gov. Gray Davis announced a $7-billion agreement Friday to buy electricity for 10 years from the most robust of California’s utility companies, Sempra Energy, parent of San Diego Gas & Electric Co.
In contrast, a decidedly more troubled Edison International launched a $3-million advertising campaign to build support for completion of its deal, brokered by Davis, to sell its transmission grid to the state for $2.76 billion.
The agreement is designed to help the Rosemead company’s Southern California Edison unit pay its electricity debts and stay out of U.S. Bankruptcy Court. But the proposal has run into fierce opposition in the state Legislature, which must approve it by late August or the plan will die.
Edison International also revealed that it has applied to federal regulators to change its corporate structure so that it can more easily refinance more than $2.7 billion in holding company debt. Nearly half of that debt comes due this year.
In a filing with the Federal Energy Regulatory Commission, Edison International asked to form a company that could arrange financing using the assets of its profitable Edison Mission Energy subsidiary, which builds power plants around the world, and funnel the new money into the parent company to replace old debt.
When PG&E; Corp. managed a similar, $1-billion refinancing of corporate debt in March, it was criticized by consumer advocates as protecting the parent company and other subsidiaries from problems of the Pacific Gas & Electric Co. utility, which eventually filed for Chapter 11 bankruptcy protection.
The state’s electricity deal with Sempra Energy Resources, the unregulated power generation subsidiary of San Diego-based Sempra Energy, “is a positive step toward increasing the available power supply to California at a significantly lower price than currently found on the spot market,” Davis said in a statement.
Such long-term pacts are a cornerstone of the state’s efforts to keep the lights on and reduce its exposure to the skyrocketing prices of the deregulated wholesale energy market.
Davis and Sempra were vague about the price at which the electricity will be sold, starting with 250 megawatts this summer and building to as much as 1,900 megawatts once new power plants in California, Arizona, Nevada and Mexico come online. One megawatt is enough to serve about 750 homes; forecasters say California could fall at least 3,000 megawatts, or 6%, short of meeting peak demand this summer.
The California Department of Water Resources will be paying Sempra about one-third to one-half the current average spot market price for the 250 megawatts of power this summer, Davis said, without detailing any prices. Prices will decline next year, the announcement said.
The water agency became the state’s primary power shopper in mid-January when Southern California Edison and Pacific Gas & Electric could no longer pay for electricity. The water agency now buys about one-third of the power used by the 27 million Californians served by Edison, PG&E; and SDG&E.;
Sempra Chairman Stephen L. Baum said the power will be sold “at prices very close to what the governor has been seeking.” The water agency has lined up about $50 billion in long-term power contracts at an average price of 7.9 cents a kilowatt-hour over the next 10 years.
Baum, speaking to shareholders at a meeting in Irvine, said the contract represents Sempra’s commitment to plow profit back into its home state. The company has been earning money from the state’s electricity crisis, Baum acknowledged in a testy exchange with a shareholder, but he pointed out that only 15% of the profit from Sempra’s energy trading subsidiary was earned in the Western region.
He said SDG&E; is extremely close to signing a deal to sell its transmission grid to the state under terms similar to those Edison received: 2.3 times book value, or about $1 billion.
The Edison transmission grid sale has run into such opposition in the Legislature that Edison International is willing to spend $3 million in conjunction with several business groups to mount a statewide campaign beginning today of television and radio advertisements that urge immediate legislative action. Edison stressed that it is spending shareholder money, not ratepayer funds.
The advertisements raise the specter of an Edison bankruptcy on top of the April 6 filing by Pacific Gas & Electric if the transmission sale is not approved.
Douglas Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica reacted angrily to the Edison ad campaign and its refinancing attempt, calling them “more evidence that Edison’s concerns are not with Californians but with its shareholders and its international businesses.”
