Pact With PG&E Eluding Governor 
Power: Davis says obstacles include a debt that is double Edison's. Others 
cite an aggressive corporate culture as an impediment to state purchase of 
grid. 
By DAN MORAIN, NANCY RIVERA BROOKS, Times Staff Writers


?????WASHINGTON--As he attempts to finalize a settlement with Southern 
California Edison, Gov. Gray Davis said Monday that his effort to rescue a 
more recalcitrant Pacific Gas & Electric has been short-circuited by issues 
far more difficult than those raised by the state's other two ailing 
utilities. 
?????PG&E's debt could be as much as $8 billion, Davis indicated--twice the 
red ink of Edison, which Friday reached a preliminary agreement to sell its 
transmission lines to the state for $2.76 billion to pay off some of its 
staggering debt. Davis acknowledged that the Edison deal would mean nothing 
unless he was able to reach a twin pact with PG&E. 
?????Seasoned utility watchers see PG&E's stubborn negotiating posture as 
partly a bargaining ploy and partly the result of underlying business issues 
at the San Francisco company. 
?????Some cite a more aggressive corporate culture at PG&E than at Edison 
that has left PG&E alone on a precarious pinnacle, with bankruptcy on one 
side and partial dismembering by the state on the other. 
?????Brian Youngberg, senior utility analyst with the Edward Jones investment 
firm in St. Louis, said PG&E "has historically pushed the envelope more in 
certain situations and that probably reflects their corporate culture. 
They're just sticking to their guns." 
?????While Edison appears to have rejected bankruptcy law protection as an 
option, PG&E has not. 
?????Although Davis did not specify the size of PG&E's debt, he said it is 
"more than twice the size of Southern California Edison's." As part of the 
deal between Davis and Edison, both sides agreed that the utility's debt is 
about $4 billion, sources close to the talks have said. 
?????"We are making progress" with PG&E, said Davis, attending the annual 
National Governors Assn. conference in Washington, D.C. "I want people to 
understand it is a far more complicated transaction. . . . It is just going 
to take a little longer." 
?????Officials at PG&E and its parent, PG&E Corp., declined to publicly 
discuss the company's stance, citing the sensitivity of the negotiations. 
Company spokesman Ron Low said only that "we expect to meet again this week. 
There was no time or date set yet." 
?????San Francisco lawyer Michael Kahn, one of Davis' energy advisors, said 
the parties "had contact over the weekend" but he declined to elaborate. 
?????"We in the governor's office would very much like to reach arrangements 
with them and don't want to say anything in public that spoils the 
negotiations," he said. 
?????PG&E's hard-nosed bargaining stance is no surprise to Wall Street 
analysts and consumer advocates who have watched the utility's aggressive 
moves to shed its hydroelectric system, now blocked by state law, and to 
recoup past electricity and other costs. 
?????"It could be a negotiating tactic," said Lori Woodland, an analyst with 
Fitch Inc., the credit-rating firm that was the first to drop PG&E and 
Edison's debt to junk bond status. 
?????"PG&E has the largest piece of the pie" in terms of uncollected 
electricity costs, Woodland said. "It could also be just the thought of 
having to sacrifice their assets to pay for what ended up being flawed public 
policy." 
?????Consumer advocate Michael Shames contends that PG&E might believe that a 
bankruptcy judge would allow the utility to sell some assets and restructure 
its debt in ways that would be preferable to anything the state is offering. 
?????"On the other hand, if Edison and [San Diego Gas & Electric] do sign on, 
then PG&E almost has to or risk the wrath of the governor and the Public 
Utilities Commission for the next seven years," said Shames, executive 
director of the Utility Consumers' Action Network in San Diego. 
?????Edison is more comfortable in the role of regulated utility than is 
PG&E, said Mike Florio, a lawyer with the Utility Reform Network in San 
Francisco. 
?????"PG&E really seems to hate PUC regulation and wants to get as far away 
from it as it can, even if it means taking the company into the tank," said 
Florio, who is on the governing board of the California Independent System 
Operator, which runs the transmission grid owned by the three utilities. 
?????The utilities have amassed more than $12 billion in debt as they paid 
record sums for wholesale power last year, but were barred by state 
regulators from passing those costs on to California consumers of 
electricity. 
?????The level of debt is a fundamental part of the negotiations between the 
Davis administration and the three private utilities. At least part of that 
debt ultimately will be passed on to consumers. While Davis says he opposes 
rate hikes, his plan would restructure the rate system by propping up rates 
in the coming years, even as electricity costs may fall. 
?????Davis on Friday announced the outlines of an accord in which the state 
would buy Edison's share of the transmission grid for $2.76 billion. He said 
he hopes to make the deal final by week's end with Edison and Sempra, the 
parent company of San Diego Gas & Electric. 
?????Davis, meanwhile, is scheduled to meet today with U.S. Energy Secretary 
Spencer Abraham to outline his plan to take over the transmission grid. The 
Federal Energy Regulatory Commission must approve the state takeover of the 
grid, and FERC Chairman Kurt Hebert has been quoted recently as being 
skeptical of the plan. 
?????"Some people in Washington see this as more of an ideological 
statement," Davis said. "As a governor, I see it as a practical solution. . . 
. Clearly, we have to persuade lots of people in Washington that what we're 
doing is the right thing." 
?????Davis expressed optimism that the Bush administration would approve the 
transfer. Davis and other governors attending the conference met with the 
president for about 45 minutes at the White House on Monday. 
?????In his opening remarks, Bush repeated his desire to give the states more 
authority, saying "real change comes from the states up." 
?????Davis noted that he and other Western governors are hoping for federal 
aid to overhaul the transmission and distribution systems for electricity and 
natural gas system. 
?????"If we're going to have a strong economy," Davis said, "we have to have 
the electricity to power it." 
?????Davis, chairman of the Democratic Governors Assn., was scheduled to 
attend a $5.5-million fund-raiser Monday night for the Democratic governors 
in Washington. He will then leave for New York, where he will hold personal 
fund-raisers and confer with Wall Street analysts Wednesday about the state's 
energy situation. 
?????Meanwhile, Duke Energy North America on Monday suspended a lawsuit it 
had filed against Davis. The company said it reached an "interim settlement" 
to sell power to the state at the same below-market prices that it originally 
had agreed to supply to Edison and PG&E under long-term contracts. 
?????Duke sued the governor after he used emergency authority to seize the 
Duke contracts and similar contracts signed by other energy companies with 
the two utilities. Davis' action prevented the Power Exchange, the state's 
now defunct electricity market, from liquidating the contracts after Edison 
and PG&E defaulted on multimillion-dollar payments. 
?????The agreement reached Monday between Duke and the state expires April 
30, a Duke spokesman said, which should give the parties enough time to reach 
a more formal settlement. 
?????Power Exchange officials, however, are pressing ahead with their 
$1-billion claim against the state. Under California law, the state must pay 
reasonable value for private property seized under the governor's emergency 
authority. 
* * *
?????Morain reported from Washington, Rivera Brooks from Los Angeles. Times 
staff writers Tim Reiterman in San Francisco and Nancy Vogel in Sacramento 
contributed to this story. Copyright 2001 Los Angeles Times 


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