Edison Deal Sets High Legislative Hurdle for Davis

Gov. Gray Davis faces the toughest legislative challenge of his tenure as he tries to win votes for a deal he says is needed to keep Southern California Edison out of bankruptcy--even as lawmakers work on alternative plans.

Davis has tapped Sen. Richard Polanco to carry the bill, and the Los Angeles Democrat is expected to introduce legislation implementing key parts of the Edison deal this week. But even before hearings begin, key lawmakers say the Davis plan has little chance of success, at least not in its current form.

Some Democrats in the Assembly are considering the possibility that the effort to rescue Edison could falter, that the company could end up in bankruptcy, and that the state might buy the utility, according to a summary of various plans prepared by Assembly Democrats.

The document, prepared for Assembly leaders, shows that at least some members of the lower house are thinking about making a run at buying Edison’s Northern California counterpart, Pacific Gas & Electric, which filed for bankruptcy last month.

“The state would assume existing secured debt . . . and would pay the unsecured debt using a combination of the cash that has been hoarded by the utility . . . and new cash from revenue bonds issued by the California Power Authority,” the document obtained by The Times says.

With Edison’s stock price depressed, the cost to the state would be perhaps $1 billion to $2 billion. PG&E;’s cost might be less, the document suggests. The state would have to spend additional sums to pay off the utilities’ creditors.

“I don’t know if we have even contemplated that thought,” Davis spokesman Steve Maviglio said of a potential bankruptcy. “We’re still optimistic that the Legislature will agree to the [deal] or a framework that encompasses most of it.”

Lawmakers, meanwhile, shut down their special session on energy Monday, a necessary step so the state could sell as much as $13.4 billion in bonds by August to pay for power purchases. Davis quickly reconvened a second special session to deal with many other energy bills.

Measure Would Use Part of Utility Bills

“This is not going to be solved by the state buying the utilities,” said Bob Foster, the Edison executive who oversees lobbying operation. “It is time to get real here. The state has a crisis on its hands. It needs to start digging out.”

The 98-page bill would authorize the state to pay $2.76 billion to buy Edison’s high voltage transmission lines, and permit the state to sell bonds to finance the purchase. Edison would use the money to restructure and pay down its debt, pegged at $3.5 billion.

Additionally, the bill would earmark part of ratepayers’ monthly utility bills to be used by Edison to pay off debt it incurred in 2000 and early this year as state regulators barred the company from charging consumers for the full cost of record wholesale electricity prices.

“The state of California needs to get out of the business of buying electricity,” Polanco said, adding that the measure assumes Edison would take over the chore of buying power at the end of 2002 once it gains financial stability. “My reasons for stepping up to the plate is to deal with it and get it behind us.”

Passage of the bill requires simple majorities in the 40-seat Senate and 80-seat Assembly. But Davis is having a hard time persuading fellow Democrats to embrace the proposal, and Republicans shudder at the prospect of the state getting more deeply involved in the power business by taking over Edison’s transmission system. Some think Edison should follow PG&E; into Bankruptcy Court.

Some Officials Prefer Bankruptcy Option

“Why should we spend $3.5 billion for something the Bankruptcy Court does for free?” Sen. Tom McClintock (R-Thousand Oaks) asked. “I don’t hear anybody voicing support for the bailout.”

Added Sen. Martha Escutia (D-Whittier): “I haven’t been given any argument why bankruptcy is bad.”

Escutia said one of Davis’ top aides jokingly threatened to lock Escutia in a padded room until she voted for the bill. “I told her the governor would have to put me in a straitjacket, and I still wouldn’t vote for it.”

Senate President Pro Tem John Burton, the Legislature’s most influential Democrat, said he would prefer that Edison not file for bankruptcy, but that the bankruptcy of Edison’s Northern California counterpart, PG&E;, has had little day-to-day impact.

“Bankruptcy is not something I’m afraid of,” Burton said.

Burton’s biggest criticism of the Davis-Edison accord is that it would allow independent power sellers, most of which are out-of-state firms, to recoup all money owed them by Edison.

Burton said no deal will win passage unless the independent generators, who have reaped significant profits selling wholesale electricity to the utilities, agree to take a discount on the money they are owed. He called on them to accept a 30% discount, an amount that Davis embraced last week after meeting with Burton and other legislators.

Burton’s idea is one of at least four alternatives to the Davis-Edison deal now in the works at the Capitol.

In the lower house, the plan with the most support is being pushed by Assemblymen John Dutra (D-Fremont) and Joe Nation (D-San Rafael). It would require that generators and other creditors take 25% less than they are owed, pushing Edison debt to $2.65 billion, from the current $3.5 billion.

“I have every confidence that generators and marketers will be willing to bargain,” Nation said. His plan also would require an audit by the California Public Utilities Commission to determine Edison’s actual debt, something not required by Davis’ plan. Additionally, the state would have an option to buy Edison’s transmission system, rather than a commitment to buying it, with the price to be reviewed by the PUC if the transaction is completed.

Davis has met privately with legislators to ask for support. Davis even called on executives of independent power companies to lobby lawmakers, telling them that approval of the measure is the quickest way to ensure that they will be paid the more than $1 billion that Edison owes them.