After a week of intense closed-door negotiations with utility representatives, Gov. Gray Davis said today he had reached an "agreement in principle" with Southern California Edison to buy the utility's power lines for an estimated $2.7 billion.
The deal also requires Edison International, the parent company of Edison, to sell cheap power to the state for a decade.
"This is the framework of a good, balanced deal," Davis said. "It's not a final deal. There's a lot of work to be done. But we're making progress."
The governor said he did not expect customer rates to increase as a result of the deal.
Edison did not immediately return calls seeking comment.
Trying to Avert Bankruptcy
The state has been in talks for a week to buy a total of 26,000 miles of transmission lines from Edison, Pacific Gas and Electric and Sempra Energy, which operates San Diego Gas & Electric. The total cost of the lines could range from $4.5 billion to $7 billion.
The effort is intended to help restore the financial health of the state's two largest utilities, PG&E and Edison, both of which are near bankruptcy. The $2.7 billion price for the Edison lines amounts to 2.3 times the estimated book value, Davis said.
The utilities say they have lost nearly $13 billion since June, trapped between soaring wholesale power prices and state-imposed rate caps for consumers. The tentative plan announced by Davis would allow Edison to issue bonds for a substantial portion of its losses.
Davis said the state is making good progress in its talks with Sempra and "some progress" with PG&E. Thursday, Davis said he will not sign off on any grid buyout without all three utilities' participation.
"I do not believe we can make a satisfactory arrangement without 60 percent of the transmission grid, and that would require cooperation with PG&E," he said today.
PG&E spokesman Ron Low said Thursday night that talks had ended with no resolution that day.
"These are complicated problems that will not be solved overnight," Low said. "There are clearly some issues where we are very far apart."
Still, PG&E chief executive officer Robert Glynn Jr. said today the meeting with Davis was a "milestone in the resolution of California's energy crisis" and said he was willing to meet further to discuss the utility's proposal.
"Each utility's issues and opportunities in this crisis are different, and we believe that PG&E has proposed a detailed solution that balances ratepayer and shareholder interests," Glynn said in a statement issued today before the governor's news conference.
The company said it would have no further comment.
The tentative agreement also calls for:
Edison parent Edison International to make payments to the utility of about $420 million.
Edison International to commit the entire output of its Sunrise Mission power project at low, cost-based rates for 10 years. Davis said that arrangement could save ratepayers $500 million over the next two years.
Edison to provide cost-based rates from generating plants it owns for another 10 years.
Edison to drop its lawsuit against the California Public Utilities Commission claiming that imposed rate caps were illegal under federal law.
"This entire transaction, which I believe is fair and balanced for both sides, will be accomplished within the existing rate structure," Davis said. "We will not be asking any more of consumers to allow this transaction to come to pass."
Davis said negotiations will continue in the coming days.
Consumer advocate Harvey Rosenfield called the governor's plan "an outrageous giveaway" and predicted that if lawmakers didn't halt it, voters would revolt.
"The most outrageous part of this isn't even paying 2.3 times what the lines are worth, but then allowing the parent companies that siphoned off billions of dollars to pay only the tax payment they already owe," Rosenfield said.
The Public Utilities Commission already regulates how much the utilities can charge for power their own plants generate, Rosenfield said.