California tentatively agrees to purchase S.C. Edison lines

LOS ANGELES, California (CNN) - The state of California reached a tentative agreement Friday with Southern California Edison to purchase the utility's power lines for an estimated $2.7 billion.

Gov. Gray Davis said the state has agreed to pay 2.3 times the estimated value of the lines in an effort to keep the utility out of bankruptcy.

In exchange, Southern California Edison would provide cost-based rates to the state from generators they own for the next 10 years.

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Edison would also drop their pending litigation against the California Public Utilities Commission, which could have led to an immediate rate increase.

"This is a complex transaction with a lot of moving parts. With these terms in place, I'm confident we'll be able to hammer out a final agreement shortly," Davis said.

The governor has been in talks for the past week with representatives from the state's largest private utilities: Edison, Pacific Gas and Electric, and Sempra Energy, which operates San Diego Gas & Electric.

Davis hopes to keep the utilities solvent and keep power flowing through the state by purchasing 26,000 miles of transmission lines from the utilities.

The total cost is likely to range from $4.5 billion to $7 billion.

Davis says negotiations will continue with the utilities for the next several days.

The deal is part of a rescue effort the governor is spearheading to salvage the state's investor-owned utilities and secure a reliable, affordable source of electricity for California, which is in the midst of its worst-ever power crisis.

Davis told a news conference he was still working toward a deal with San Francisco-based PG&E Corp's Pacific Gas and Electric and Sempra's San Diego Gas and Electric (SDG&E) but that it was too early to make any announcements on those talks.

In the deal announced Friday, Edison International agreed to transfer $420 million to its utility subsidiary, which has been pushed close to bankruptcy by soaring wholesale electricity costs it has not been allowed to collect from its ratepayers.

The utility itself also agreed to enter several long-term power supply contracts at "very cheap rates" that Davis said would benefit Californians and help avoid a rate hike.

Southern California Edison under the agreement in principle, would also drop pending litigation against state regulators which could have led to a sharp increases in electricity rates for their customers.

Davis said a state purchase of the 32,800 miles of transmission lines owned by PG&E, SoCal Edison and SDG&E remained a key objective of his plan to stabilize the power market and provide a better, more reliable distribution of available electricity supplies through most of the state.

The three utilities' transmission lines carry power to about 24 million of the state's 34 million residents.

PG&E has so far balked at selling such a huge asset despite the infusion of cash it would provide to help pay off its wholesale power market debts, which it estimates at about $7 billion.

"Each utility's issues and opportunities in this crisis are different, and we believe that PG&E has proposed a detailed solution that balances ratepayer and shareholder interests," PG&E Chairman and Chief Executive Robert Glynn said in a prepared statement.

Reuters contributed to this report.

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