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Wednesday, 3 October, 2001, 19:35 GMT 20:35 UK
State saves California power giant
Power lines near Los Angeles, California
The state's energy crisis is entering its second long year
California officials, in a last-minute manoeuvre, have staved off bankruptcy for Southern California Edison (SCE), the state's second largest utility, saving it from a fate already suffered by the state's biggest electricity and natural-gas provider.

Power lines over a Los Angeles freeway
State officials have worked feverishly to keep California on the go
California utilities have faced trying times following the state's adoption of utility deregulation five years ago.

The California Public Utilities Commission (CPUC) and SCE's parent firm, Edison International, reached agreement late on Tuesday in a deal that allows the utility to recover the costs it incurred in purchasing electricity.

Governor backs deal

The pact means SEC could recover as much as $3.3bn (2.2bn) in costs, according to early estimates.

California Governor Gray Davis backed the deal, saying the agreement "protected the public interest and will allow the state's second-largest utility to return to financial health."

California Governor Gray Davis
Governor Gray Davis' popularity has waned during the crisis
In the last year, SCE has accumulated $3.9bn in debt as it was forced to supply electricity at rates cheaper than it was buying it for.

The state's deregulation laws prevented SCE from passing on those costs to its 11 million customers.

The action also resulted in Governor Davis cancelling a special state-legislative session due to commence 9 October with the hope of solving the utility companies' financial problems.

Governor Davis was harshly critical of Pacific Gas & Electric (PGE), the state's largest utility, when it filed for bankruptcy in April.

Bond deal fails

Earlier Tuesday, the CPUC defeated a bond deal, which passed the state legislature in May. The plan called for $12.5bn in bonds to be sold to the public to help restore the state's fiscal health.

The state stepped in to buy emergency power when electric utilities, strapped for cash, could not afford to do so.

The CPUC said the deal was costly and might result in the regulatory agency losing its authority to regulate utility prices.

State Treasurer Phil Angelides said the state faces a $9bn budget deficit for the 2002-2003 fiscal year if the bonds are not sold before next July.

Governor Davis criticised the CPUC rejection of the bond deal, calling the agency's 4-1 vote "an irresponsible act".

The Governor said, "it creates uncertainty about our ability to sell the bonds necessary to repay the general fund when California can least afford additional fiscal uncertainty."

See also:

09 May 01 | Business
California approves bond issue
05 Apr 01 | Americas
California's $4bn energy boost
30 May 01 | Americas
California governor to sue Bush
20 Mar 01 | Americas
California ends power cuts
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