Energy Crisis: a Way Out
California’s energy nightmare of 2001 appears to be coming to an end. The most urgent problem left from this year’s energy crisis, the fiscal fate of Southern California Edison, seems to have been solved in a reasonable fashion. Now there’s an obvious solution at hand to another lingering matter, the sale of a bond issue needed to repay the state budget for billions of dollars spent to buy power. A bill that would do so, approved overwhelmingly by the Legislature, is on the desk of Gov. Gray Davis.
The Edison breakthrough means the utility will remain under state regulatory control and its consumer rates will not go up over the next few years. The bond sale is important to taxpayers and users of state services. Without it, the state would have to cut spending to cover a huge deficit in the state budget.
The Edison agreement ended a long struggle between Davis and the Legislature over whether to rescue Edison or allow the utility to follow Pacific Gas & Electric Co. into bankruptcy. When lawmakers rejected an Edison rescue last month, Davis angrily called them back for a special session Oct. 9 to revisit the issue. Prospects were bleak, however, so Tuesday’s stunning announcement by the state Public Utilities Commission of a plan to get Edison out of debt was especially welcome.
Davis promptly canceled the special session, much to the delight of the Legislature, which was skittish about doing anything to help a utility. The deal was struck in secret negotiations over the last 10 days and now is before a federal judge for approval.
Back-room deals affecting the public aren’t good, but in this case there may have been no other way. Edison will repay its debts over the next two years using a combination of ratepayer revenues and $1.5 billion of its own funds, mostly by canceling dividend payments to shareholders at least through 2003.
The state took over power purchases early this year after both Edison and PG&E; ran out of cash and big generating companies refused to sell to them. The utilities went broke because of runaway wholesale costs fostered by the state’s flawed electricity deregulation plan.
The PUC rejected a proposal by Davis and state Treasurer Phil Angelides to give the state first call on power rate revenues and to lock in costly state power contracts for 15 years. The PUC favors SB 18xx, by Senate leader John Burton (D-San Francisco), which dedicates a priority portion of revenues to bondholders and another segment to the Department of Water Resources. This is a better way because it guarantees bond repayment and also allows the state to renegotiate some of the most unfavorable power contracts. (Some officials say the state could go into default if there is no plan to pay a $4-billion loan coming due next week; Controller Kathleen Connell says this and other loans can be covered without the bond issue, which would not occur before next fall.)
The state must act now to get the money to repay the state budget, which is facing a major deficit because of the lagging economy, shocked further by the crisis of Sept. 11. Davis has threatened to veto SB 18xx, but now it appears to be the only game in town. He should sign the Burton bill into law.
This plan provides energy security for 11 million Southern Californians, and the bond sale offers fiscal stability to state government. Stability is something California needs, especially now.
