March 26, 2001
Edison Nearing Pact to Sell Assets, Negotiator Says
(Sacramento, California) Edison International, owner of California’s No. 2 electric utility, is near a final agreement to sell its power-transmission lines to the state, Governor Gray Davis’s chief negotiator said.
Negotiations are continuing with PG&E Corp., owner of California’s largest utility, and No. 3 utility owner Sempra Energy, said Joseph Fichera, chief executive of Saber Partners LLC. A final agreement with Edison’s utility, Southern California Edison, will likely be reached first, he said.
“We are meeting very intensely with Southern California Edison,” Fichera said. “They are first in the queue. We met three times last week and we have a meeting scheduled tomorrow.”
Edison and PG&E have more than $13 billion in debt because they aren’t able to pass on power-buying costs to customers. Under California’s deregulation laws, wholesale power prices were allowed to float while customer rates remained frozen. The state wants to buy some of the utilities’ assets to help them pay debts and to address an energy shortage that has caused blackouts.
Fichera wouldn’t say when he expects an agreement with Edison to be reached. “This is a critical week,” he said.
Conceptual Agreement
Last month, Davis announced a conceptual agreement with Edison under which the company would sell its transmission lines to the state for $2.76 billion. Southern California Edison also would sell the state low-priced power. Davis has said that the PG&E agreement would be similar to the one with Edison.
Negotiations with Edison have moved more quickly than with PG&E, Fichera said, because PG&E is a larger company with a more complex rate structure. The state has given PG&E “a detailed offer,” Fichera said, and the San Francisco-based company has submitted a list of questions about the offer.
“We have yet to respond to that because we are working with Edison because Edison is much farther along,” Fichera said.
There has been “some communication, but no real negotiations” between the state and PG&E’s utility, Pacific Gas & Electric, in more than a week, said utility spokesman John Nelson.
“For a week to 10 days, it has been very clear that the governor’s negotiating team is trying to first deal with Southern California Edison before dealing with PG&E,” Nelson said.
A Sempra spokesman declined comment on the negotiations. Edison officials didn’t return calls for comment.
Bankruptcy Threat
State Senator Debra Bowen, chairwoman of the Senate’s Energy Utilities and Communications Committee, told reporters today that members of the Legislature are preparing for the possibility that the governor’s negotiators won’t reach an agreement with PG&E.
“Much of what I’ve heard has not been encouraging,” Bowen said. “I’ve been working with utility bankruptcy counsel to make sure we have a strategy for what to do if those talks fail.”
Pacific Gas & Electric’s Nelson said that bankruptcy “continues to be something that is not a solution and is something we continue to avoid, given the devastating impact it would have on California.”
Davis has said that for a purchase of the utilities’ transmission grid to work, the state would need to buy 60 percent of the lines. That means that both Edison and PG&E would have to agree to a sale.
Sempra
Sempra is allowed to pass on the majority of its power-buying costs to customers, and therefore hasn’t accrued the billions in debt Edison and PG&E have. The San Diego-based company is negotiating a sale of its power lines to the state.
Sempra and the state have developed a “framework that is doable,” Fichera said. The state has received a proposal from Sempra. It hasn’t given the company an offer as it has with Edison and PG&E, he said.
“They sent us a package and we’re reviewing it,” Fichera said.
Negotiations with the three utilities to buy their 32,000 miles of high-capacity power lines have been protracted, Fichera said, because state regulators and lawmakers have been taking up issues that may have an impact on the agreements.
PUC President Loretta Lynch announced today that the commission will consider a rate increase for customers of PG&E, Edison and Sempra. The PUC also will vote on ordering the utilities to pay alternative-power producers in full for their electricity, which PG&E and Edison haven’t been doing.
“There are a lot of moving parts here,” Fichera said.
This morning, Fichera and Timothy Gage, director of the California Department of Finance, briefed analysts on the negotiations in a teleconference.
“The point is for Wall Street to know that things are moving and are happening,” Fichera said this afternoon.
PG&E shares rose $3.10, or 29 percent, to $13.75 today. Edison shares rose $3.35, or 30 percent, to $14.55. Sempra shares rose $1.93, or 9 percent, to $23.
–Daniel Taub in (Sacramento, California) (310) 770-1292 or dtaub@bloomberg.net, with reporting by David Ward in (Sacramento, through the San Francisco newsroom (415) 912-2980/dfr/cs
