Davis: State has tentative deal for Edison grid

"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 deal does not include the state's other major investor-owned utilities, Pacific Gas and Electric and San Diego Gas and Electric. Davis said negotiations are continuing with all three.

The tentative deal potentially marks the first major breakthrough in the effort to resolve the state's energy crisis.

While providing desperately needed capital for Edison, it also requires the utility to drop a lawsuit against the state Public Utilities Commission that could lead to higher rates for consumers. That suit claims that consumer rate caps imposed under the state's 1996 deregulation law are illegal under federal law.

"SCE followed this course of action because it is in the interest of our ratepayers, our creditors, our shareholders and our employees," said Stephen E. Frank, the utility's chief executive officer.

John Bryson, chief executive officer of Edison International, said the utility still believes it is legally entitled to recover the cost of buying power for ratepayers. But he said Davis' plan "is far preferable to perhaps years of protracted litigation for our ratepayers, shareholders, creditors and employees."

Electricity suppliers welcomed Davis' announcement but stopped short of saying California's power problems are ending.

"We are encouraged that there has been as much progress as there has been," said Tom Williams, a spokesman for Duke Energy of Charlotte, N.C., which supplies 5 percent of California's power. "Any progress from our perspective is good."

Reliant Energy, a Houston-based supplier that accounts for about 9 percent of the state's power, expressed similar caution.

"On its face, it appears positive," spokesman Richard Wheatley said. "But the devil is in the details that have to be worked out between the state and SCE."

The state has been in talks for a week to buy 26,000 miles of transmission lines from Edison, PG&E and Sempra Energy, which owns San Diego Gas & Electric. The total cost of the lines could range from $4.5 billion to $7 billion.

State negotiators said acquiring utility assets had to be a key feature of any deal to help the utilities out of their fiscal crisis. Edison and PG&E said they have lost nearly $13 billion since June because they were barred from passing along soaring wholesale energy costs to their ratepayers.

The state would issue bonds to pay for Edison's transmission grids, a cost that would be repaid by ratepayers through existing charges on their bill, Davis said.

The $2.7 billion price for Edison's lines amounts to 2.3 times the estimated book value, he said.

Consumer advocate Harvey Rosenfield called Davis' plan "an outrageous giveaway." He said if lawmakers didn't halt it, he would try to qualify an initiative for the 2002 ballot to overturn the agreement, which requires legislative approval.

"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," he said.

Audits of both companies ordered by the PUC and released last month revealed the utilities transferred billions of dollars to their parent companies over the past four years. The money was used to pay debt, buy back stock and pay dividends to shareholders.

The audits found nothing wrong with the practice, but critics have said the companies should have used some of that money to pay bills after wholesale energy costs began to skyrocket.<