Davis Concedes Edison Rescue Is ‘Uphill Battle’

Gov. Gray Davis acknowledged Tuesday that he faces long odds in his effort to persuade lawmakers to rescue troubled Southern California Edison, but vowed to present a new plan when the Legislature returns next month for the special session he has demanded.

While Davis did not offer details about the new legislation, the Democratic governor said he expects that whatever its details, Edison will have the right to review and agree to it.

The alternative, he said, would be for the utility to follow Pacific Gas & Electric into bankruptcy, a step he said would destabilize the electricity system and the state’s economy.

“Frankly, this is an uphill battle,” Davis said during a meeting with The Times’ editorial writers to generate support for an Edison deal. “There are conscientious members of the Senate who think bankruptcy is the preferred option. I have to persuade them otherwise.”

The Legislature concluded its session Friday without agreeing to a deal, prompting Davis to call for a special session that will begin in two weeks.

However, Senate President Pro Tem John Burton (D-San Francisco), who opposed Davis’ final proposal, said Tuesday that he is not certain lawmakers will return to Sacramento, let alone vote for any new deal that Davis offers.

Edison and Davis rejected a Senate Democrats’ proposal, contending that it would not allow the utility to pay off its $3.9-billion debt and become credit-worthy.

“Anything sweeter than that [Senate deal] is going to have a problem,” Burton said.

In his session at The Times, Davis said he recognized that Burton remained skeptical about the Edison legislation, but disputed that he is offering Edison a “bailout.”

Rather than using tax money, he said, the deal he contemplates would place “ratepayers on the hook” for the costs of repaying Edison’s debt.

The alternative, Davis said, is a bankruptcy that would harm taxpayers directly and the state’s economy indirectly.

Davis warned that if Edison is forced into bankruptcy, the judge overseeing the company’s restructuring may elect to sell off some of the utility’s generating units in order to pay creditors.

That would remove those generators from the limits Edison has agreed to with respect to profits, potentially forcing the state to pay far more for power that those generators produce in the future.

More broadly, bankruptcy could alarm businesses and others about the security of California’s economy, Davis said.

“It is not good for the state to have both of its utilities in bankruptcy,” Davis said. “It is not good for [government] credit ratings. It is not good for the perception of the state as a place to do business.”

Although Davis acknowledged his differences with Burton, he said he doubts that the senator is staking the prestige of his leadership on opposition to the version of the Edison deal that was endorsed by Davis and Assembly Democrats: “There is no question that [Burton] was opposed to the Assembly version of the bailout. But I’m not sure that he made it a leadership issue.” Rather, Davis said, lawmakers “are reluctant to cast another difficult vote.”

“They have no idea what the consequences are down the road, and you’ll be second-guessed,” the governor said. “That is the price of being in politics. You get second-guessed.”

The state began buying electricity after Edison and PG&E; amassed billions in debt as wholesale electricity prices reached record highs last year and early this year. Davis said that a stable Edison would allow it to resume its traditional role of buying power and relieve the state of having to purchase electricity.

On a related matter, the Democratic governor gave less than a vigorous endorsement of Loretta Lynch, his appointee as president of the California Public Utilities Commission. Lynch and Davis have clashed on significant issues during the energy crisis.

The governor cannot dump her from the commission; she was appointed to a six-year term. He could, however, replace her as PUC president.

“I think she is a fine person,” Davis said, after pausing before responding to a question about his relationship with Lynch. “I wouldn’t ask her to quit. I would just replace her as president if I decide to do that. But I’ve not asked her to be replaced. I don’t preclude that in the future.”

Earlier this year, Lynch moved to raise electricity rates before Davis had reached the conclusion that a rate hike was needed. More recently, Davis believes she has been slowing administration efforts sell as much as $13.4 billion in bonds to finance the state’s power purchases.

“There is no question that there have been moments when I have not been too pleased with the commission,” Davis said.

Lynch said later that Davis has not asked her to step down as president. “I respect the governor,” Lynch said, “and often we are on the same side and sometimes we disagree. . . . I believe we agree more than we disagree.”

Lynch also has defenders in the Legislature, chief among them Burton, who said replacing her would not be good for consumers.

“Loretta Lynch,” Burton said, “happens to be fighting for the homeowners and small ratepayers against big business.”

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Times staff writer Tim Reiterman contributed to this report.