Light Troubles 

Ins and outs of Gray Davis’ plan to help his pals at SCE

Wednesday, Jul 18 2001

The weather gods have smiled on Gray Davis and California of late, granting a spate of unusually mild summer weather and an absence of blackouts. But with polls showing continuing public dissatisfaction with the state‘s handling of the ongoing electricity crisis, the political heat is still on to find a lasting solution. At issue are dueling plans for a bailout of Southern California Edison, discussions of how to rebound from the collapsed federal talks on price gouging by the power generators, and uncertainty over the state’s troubled long-term power contracts. Add to this the unknown political fates of Davis and Edison advisers Chris Lehane and Mark Fabiani.

First to the Edison bailout, which might be headed for a ”Sacramento Special,“ a nickname for an 11th-hour backroom deal that gets rammed through the Legislature and signed by the governor with little public scrutiny and less understanding.

After spending weeks wrangling over the state budget and months mostly ignoring Davis‘ bailout deal with Edison -- with a monthlong recess set to begin this Friday -- alternative plans are quickly coming up without sustained or well-considered scrutiny. The Davis plan, authored by termed-out Senator Richard Polanco (D--Los Angeles), is dead in its current form. So the governor, who is remarkably close to Edison, has gotten behind a bailout bill by Assembly Speaker Bob Hertzberg (D--Sherman Oaks) and Assemblyman Fred Keeley (D--Boulder Creek).

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Many observers expect nothing final to happen this week. Consumer advocate Harvey Rosenfield worries, though, saying, ”I think they’re going to pass something at the last minute. The special interests almost always win at the last minute. The Hertzberg bill is nothing but a dressed-up bailout.“

Davis‘ press secretary, Steve Maviglio, says he is ”optimistic“ about the Hertzberg bill, noting that Davis’ lawyers have been working with the speaker since early July. But he wouldn‘t quite predict passage this week, because there are complicating factors. For one, many in the Assembly dislike the HertzbergDavis approach; they want either a simpler bailout or none at all. And Senate Democrats, led by Senate President Pro Tem John Burton (D--San Francisco), are getting together behind a plan by Senator Byron Sher (D--Palo Alto) that would have large businesses pay off most of Edison’s debt and force generators to reduce by 30 percent the amount they are owed by the utility. That would leave about $1.2 billion in debt, for which Edison itself would be responsible. This plan would also give the state the option to purchase Edison‘s transmission lines for just over book value -- half the price in the Davis bailout. One Edison lobbyist said the company’s leadership ”hates“ the plan, though they of course like the Hertzberg bill now backed by Davis.

The Hertzberg bill is better than the original Davis deal with Edison. The state would purchase the utility‘s transmission lines for 13 percent less than the $2.76 billion Davis negotiated. It would allow many big energy users -- mostly business and industry -- to eventually bypass the utilities in purchasing their own power directly from generators. But to win that right, they would be required to pay off a portion of Edison’s debt to its creditors. And consumer advocates fear that business would simply pass the cost on to its customers.

The Hertzberg bill would have made a fine starting point for negotiation between the state and Edison. Unfortunately, Davis sent forth a former Edison president, Michael Peevey, to negotiate with his former company. That obvious conflict of interest, coupled with Davis‘ panic over the bankruptcy of Pacific Gas & Electric, led to one of the classic sweetheart deals in California history.

Had the Federal Energy Regulatory a Commission’s recently concluded settlement talks in Washington -- between state officials and power generators over rampant price gouging -- not collapsed, an Edison deal would have been much easier to do. If an FERC settlement came up with $4.5 billion, Edison would get about $1 billion. Add in a $1.5 billion gain on sale of the transmission lines, the figure in the Senate plan, and only $1 billion in the company‘s claimed debt remains. With Edison already agreeing as part of the benighted Davis deal to give back $400 million of the money its holding company took from the utility for unneeded tax payments, things become very doable. But FERC isn’t likely to order anywhere near that amount in refunds.

A mere $1 billion is the figure most frequently cited by the FERC negotiator. And even if FERC mandates that amount, the generators might well tie up the order in court and prevent Edison from paying its bills.

A settlement for serious money would make an Edison bailout much likelier and would make the state‘s increasingly criticized $43 billion in long-term power contracts easier to renegotiate. But that’s probably not going to happen.

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