In the News: Recent Developments
 


April 20, 2001

Calif. Owning Grid Will Limit Upgrades, Lawmaker Says

A plan for California to buy 32,000 miles of power-transmission lines from the state’s three investor-owned utilities will discourage new investments in the system, Congressman Doug Ose said.

California Governor Gray Davis agreed with Edison International, owner of the state’s No. 2 electric utility, for the state to buy the company’s power lines for $2.76 billion. Davis, a Democrat, also wants the state to buy lines owned by PG&E Corp. and Sempra Energy.

Millions of Californians experienced power outages during two days of blackouts last month when electricity demand outstripped available supplies. The state’s largest utility, PG&E’s Pacific Gas & Electric, filed for bankruptcy this month after running up $9 billion in power-buying losses. Edison’s Southern California Edison has lost more than $5.4 billion.

The state “should ensure that energy providers have open access to the transmission lines,” Ose, a Republican from (Sacramento, California) said in a letter to the House Subcommittee on Energy and Air Quality. The letter is dated yesterday and was distributed today.

New Investments

State control would reduce efficiency and limit incentives for new investments in the transmission system, wrote Ose, chairman of the House Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs.

Ose held three days of hearings in California last week on the state’s energy crisis, and heard testimony from state regulatory officials, utility executives and representatives from power-generating companies.

Pacific Gas & Electric filed for bankruptcy protection after failing to reach an agreement on a plan to sell its power lines to the state. Pacific Gas & Electric and Southern California Edison have accrued more than $14 billion in losses buying power. Under state deregulation rules, wholesale power prices are allowed to float while customer rates remain frozen.

Under Davis’s plan, the utilities would use proceeds from the power-system sale to pay debts. Once the state owns the grid, it could make long-needed improvements, including an upgrade of lines that transmit power between northern and southern California, Davis has said.

State Upgrades

According to a financial analysis of the state’s plan to buy Edison’s power grid, about 800,000 megawatt-hours, or enough power to serve 800,000 homes for 1,000 hours, could be added to the grid each year through upgrades the state plans to make, said Joseph Fichera, chief executive of Saber Partners LLC and Davis’s top financial adviser in the negotiations with Edison.

The needed upgrades to Edison’s lines could be made for about $500 million less over 15 years than they would cost if the utility did them itself, Fichera said. California is able to issue tax-free bonds to pay for the improvements.

“We can do the upgrades, we can do them with more cost-effective financing, and we can save ratepayers money,” Fichera said.

During a press conference with reporters today, Edison Senior Vice President Bob Foster agreed that the grid needs to be upgraded.

“The distribution systems in California were all built up after World War II,” Foster said. “They are old. They are aging.”

–Daniel Taub in Los Angeles, (323) 801-1261 or dtaub@bloomberg.net, through the San Francisco newsroom (415) 912-2980/dfr/mtw/dfr


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