Stop Finger-Pointing and Start Negotiating

As a longtime director of Southern California Edison, I am acutely aware of the severity and complexity of today’s unprecedented energy crisis and the fact that there is no easy or pleasant way out of it. Instead of finger-pointing, however, I believe we must focus our attention on how to extricate ourselves.

The most promising approach is legislation that is now pending before state lawmakers that is modeled on the agreement the state has negotiated with Edison. I support this approach, not simply because of my association with Edison, but also because I believe it offers a major step toward an overall solution for everyone involved.

The key issue that must be addressed is the precariousness of the state’s major utilities. One is in bankruptcy and another, Edison, is in very shaky financial condition. This cannot help but further affect the service levels and the cost of power in the state.

Throughout last summer, fall and into the winter, Edison purchased power from increasingly high-cost wholesale power markets in order to keep electricity flowing to its customers. The company made no profit for providing that service and, indeed, suffered power-purchase losses between May 2000 and January 2001 totaling $5.5 billion.

Although federal and state law entitle Edison to recover these costs, California’s regulators have not permitted this. But rather than solely pursuing its legal rights in the courts, Edison has decided to focus on negotiating a set of mutual commitments with the state that would address both the company’s need to be restored to financial health and California’s power future.

For its part, Edison committed to:

* Provide all of its existing power generation capacity, including hydroelectric power, at cost-based (rather than market-based) rates for the next 10 years, thus helping to stabilize customer rates.

* Bring new power supplies to California customers by selling to the state, also at a cost-based rate, the entire output of Edison’s new, unregulated Sunrise power station, which is scheduled to come on line in August.

* Take state government out of the power procurement business 19 months from now, when Edison is again made financially stable and has issued debt reimbursement bonds whose cost to consumers would amount to roughly 1/2cent per kilowatt hour.

* Invest not less than $3 billion over the next five years in upgrading the Southern California power distribution system, which is essential to ensuring the future reliable delivery of power throughout the system.

* Sell its transmission system, or alternatively, make other valuable commitments to the state.

Prompt action is needed from the California Legislature on these proposals. The crisis is having a profound daily impact not just on Edison but on California’s economy as a whole.

Just since January, the state has incurred more than $7 billion in power procurement costs, resulting in a sharp reduction in the state’s credit rating and millions of dollars of additional interest cost every time the state has had to borrow.

There are also credible reports that, in view of our power situation, out-of-state businesses are deciding against new or further investments in California and that California businesses are planning to expand elsewhere.

The alternative to quick action by the Legislature and Gov. Gray Davis is stark: bankruptcy for Edison. If that happens, the state will suffer another blow to its reputation, and there is a strong likelihood that the quality of service will begin to deteriorate. The state will also be in the power procurement business indefinitely, with a continuing drain on state resources.

The proposed agreement between the state of California and Edison may not be perfect. I can attest, however, that it was the product of prolonged, intense and hard-fought negotiation. Neither side got everything it wanted.

But the principles the agreement embodies represent the clearest course to avoid a major utility bankruptcy in Southern California.

These principles also provide a structure that might be adaptable to the state’s two other major utilities.

From Edison’s perspective, the commitments it is willing to undertake will seriously constrain the company and limit its profitability for many years. The executives and directors of Edison have concluded that, as stewards of the company and citizens of California, taking on these burdens while continuing to provide essential services is the responsible thing to do.

I hope that the Legislature will rise similarly to the occasion.