The trappings of a major press conference made it appear like a long-sought ending, but it was really just the beginning late Monday afternoon when California’s governor and Southern California Edison’s CEO announced a breakthrough after six weeks of talks. The “memorandum of understanding” (MOU) for the sale of Edison’s transmission system and power production to the state is contingent on state regulators and legislators swiftly completing some equally significant steps.

Creditors still had lots of questions Tuesday when they listened to another of Edison’s twice-weekly conference calls. Major questions loomed as to how the regulators and legislators in the next 60 days were going to accomplish something they have failed to do in the first 90 days of the new year.

The comprehensive MOU involves not only Edison’s commitment to sell to the state department of water resources (DWR) 12,000 miles of electric transmission assets and land rights of way for $2.76 billion, but also a 10-year commitment to sell 6,000 MW of utility and unregulated affiliate electric supplies at cost-based below-market rates. It also includes $3 billion in capital infrastructure investments for its distribution operations over the next five years, granting perpetual easements and nondevelopment status to 20,000 acres of watershed tied to Edison’s hydroelectric generating system, all contingent on some heavy lifting by state lawmakers and the California Public Utilities Commission, along with continued forbearance by Edison’s long list of high-powered creditors, including major lenders and power suppliers.

The governor noted that the MOU is “very significant, but many other actions are needed to implement the agreement.”

Admitting it took longer than he first said it would take, Gov. Gray Davis announced the MOU with Edison International CEO John Bryson in Los Angeles Monday. The two are not strangers. Both served 20 years ago in the administration of then-second-term Gov. Jerry Brown (Bryson was the head of the CPUC at the time).

Davis seemed intent on making only slightly concealed digs at Pacific Gas and Electric Co., which surprised him and his backers last Friday with its Chapter 11 bankruptcy filing. He praised Edison for “staying at the bargaining table,” although he characterized the negotiations leading to the MOU as “difficult and arduous.”

The governor also admitted that Californians face rolling blackouts not only this summer but again in 2002. “The time for conservation is going to be most critical this summer, but will likely be needed next summer (2002) as well,” Davis said. “We’re running as fast as we possibly can,” the governor told reporters. “This state has never had six plants being built at the same time; we now have seven under construction.”

“This agreement proves that good things can happen when the parties are responsible, resolute and remain at the table,” he said. “The principles follow closely along the lines of the conceptual agreement I announced 38 days ago,” the governor said. (Actually it was more like 44 days ago, but who’s counting?)

“I am optimistic that we can begin in earnest from here with San Diego Gas and Electric and very shortly conclude a very similar agreement that follows the outline of these principles,” Davis said. “The result was positive and proves you can solve problems when you stay at the table. If you walk away, nothing gets done. If you stay at the table, good things can, and in this case, did happen.”

If the state reaches two agreements in a short period of time with both Edison and SDG&E, then Davis hopes the state can convince the bankruptcy judge to order PG&E to sell its transmission, too. “One way or another, we hope to get all three lines,” he said.

Bryson reiterated that a practical resolution like the MOU is “far preferable to bankruptcy.” The Edison International and utility boards of directors held five-hour meetings Monday before approving the agreement.”The agreement is a challenge, but we can implement it, and we feel strongly — as I believe the governor does — that in facing the tough crisis, the tough challenges of the financial crisis, we will be well served by having financially healthy utilities, with experienced and skilled employees who can make a difference as we work through the months and years ahead to restore reliability,” said Bryson.

Plus, with the signing of a final contract, “we believe we will have the ability to borrow and pay our debts, and we’re very eager to do that,” he said. The state is using its creditworthiness to help restore Edison’s by 2003, when it would resume buying the spot power purchases needed to fulfill demand beyond what is provided by Edison’s own generation, by QF suppliers and by the state’s long-term contracts.

The deal gives Edison $3.5 billion, including $l.5 billion from the sale of its transmission assets and $2 billion from securitized bonds that will be guaranteed by a portion of rate increases already approved. It is estimated the rate impact would be about a half-a-cent/kwh over a 15-year period to finance the creditor payoffs. DWR assumes all net-short costs from Jan. 19 date forward, so Edison doesn’t have to worry about its unpaid power debts mounting.

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