Wall Street, wholesalers watching power talks

Standard & Poor's said it will keep the state on a credit watch "with negative implications" following the news last week that the Davis administration needed $500 million more to buy power day-to-day on behalf of Southern California Edison and Pacific Gas and Electric Co.

"The sooner the state can be taken out of the spot market, the better for everyone, especially the state's credit," said Steven G. Zimmerman of S&P. "The bottom line is the state has a limited surplus. The state cannot go on indefinitely providing capital to buy energy on the spot market."

The two investor-owned utilities say they have lost nearly $13 billion due to high wholesale electricity prices the state's 1996 utility deregulation law prevents them from passing onto their customers.

The state has committed about $2 billion to short-term power purchases on their behalf while it negotiates an estimated $10 billion in cheaper long-term contracts with electricity suppliers. Those suppliers say they are hesitating to sign on until the Davis administration addresses additional concerns about the utilities' debts.

Legislative Analyst Elizabeth Hill cautioned lawmakers against approving new spending until the $2.3 billion in taxpayer money it is using to buy power is reimbursed by bonds.

The state plans to issue revenue bonds in May that will be repaid over up to a decade by Edison and PG&E customers under temporary rate increases of 7 to 15 percent approved by state regulators in January and extended by the Legislature.

The power-buying and other fixes under consideration by Davis and lawmakers -- including a state purchase of 26,000 miles of transmission lines -- could cost consumers and taxpayers $20 billion, or roughly $590 for every California resident.

Most of the spending would eventually be covered by revenue bond sales to be repaid by utility customers over many years.

The growing concern on the financial front came as the Davis administration continued negotiating with Edison and PG&E.

Davis, himself, met Wednesday with an Edison CEO and is expected to meet with executives from Edison, PG&E and a third investor-owned utility, San Diego Gas & Electric, Thursday. They will discuss his proposal to have the state acquire their transmission lines to help Edison and PG&E pay their debts.

Davis said he hopes to have an agreement with the utilities by Friday. He has declined to put a dollar figure on his proposal, but said earlier that talks would start at the lines' book value. That is estimated at $4.5 billion.<