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The state’s purchase of SDG & E;’s power lines will relieve customers of balloon payments

Some South Orange County businesses could be in for relief from a looming electricity debt that many say they weren’t even aware they could soon face.

A pending deal between Gov. Gray Davis and San Diego Gas & Electric Co. could erase a running tab for electricity that appears on the bills of businesses and residents in South County and San Diego. In exchange, the state would buy the utility’s power grid for about $1 billion.

If legislators and regulators sign off on the plan,a big if,it would free SDG & E; customers from having to make a balloon payment in January 2003 of as much as $12,000 for medium and large commercial customers and $1,400 for small businesses.

Matt Stabley, chief financial officer at Capistrano Labs Inc., a San Clemente maker of surgical devices, said he welcomes the deal.

“That ‘electric energy rate adjustment’ on our bills right now is growing about $285 per month since earlier this year,” Stabley said.

The adjustment is a running difference between what SDG & E; customers have been paying following September price caps and what the utility actually pays for power. It also reflects the utility’s deferred $750 million in debt incurred last year buying power.

Capistrano Labs employs 21 people and had $4 million in revenue last year,making it liable to pay SDG & E; at least $1,400 in 2003, in addition to its regular electric bills each month.

At $800, those monthly bills now are double what they were a year ago, according to Stabley.

“It’s been pretty confusing,” he said. “It was all over the map last year,our normal $400 monthly bill would suddenly go up to $1,000. I would pay that and then next month see a credit for $500.”

SDG & E;, a unit of San Diego-based Sempra Energy, serves about 100,000 OC customers who saw their bills skyrocket last year. Under California’s electricity deregulation, SDG & E; customers became the first in the state to pay market prices for power.

The utility’s tracking of customer debt has baffled many South County operations managers. Some officials say they are unaware that SDG & E;’s rate adjustment line on their bills is a running tab. Others confess they don’t fully grasp their electricity statements.

“I honestly don’t understand SDG & E;’s accounting for charges,” said Mike Will, a manufacturing manager for Endevco Corp., a San Juan Capistrano maker of instruments that measure vibration that is part of Britain’s Meggitt PLC. “They’ve got numbers that change from month to month, even though our consumption levels weren’t fluctuating.”

Endevco recently started buying its electricity directly from Houston-based Enron Corp. rather than SDG & E;, a switch that Will said the company made specifically because of last year’s rate jump.

The company now pays $45,000 per month for its electricity bought from Enron vs. a high of $100,000 paid to SDG & E; in December.

But Endevco only switched to Enron this year and still could be on the hook for the debt to SDG & E; incurred before it dropped the San Diego utility.

Without an agreement between the state and SDG & E;, South County residential customers also are on the hook for a one-time payment of $400 in 2003.

The deal, proposed June 18, would allow the utility to erase the debt owed by its customers through accounting means and through financing from the sale of its transmission lines to the state. SDG & E; also would agree to sell power from the San Onofre nuclear power plant to the state at a discount.

A similar, bigger effort by Davis to buy Southern California Edison’s grid for $2.8 billion has hit snags in the Legislature. Some lawmakers balk at the price,almost twice what the lines are worth on paper.

Steve Baum, Sempra’s chief executive, said in a statement that he puts 50-50 odds on the prospects of the SDG & E; transmission sale going through.

Mitch Wilk, a former president of the Public Utilities Commission who now heads energy consultancy Wilk & Associates Inc. in San Francisco, said he believes that by at least agreeing to sell its lines, SDG & E; has made headway in tackling its undercollections.

“The deal is really just an option at this point,” he said. “I don’t know if you’ll see Davis pursue this unless he accomplishes the same thing with Edison first.”

Wilk said he is doubtful of Davis’ ability to get legislative approval of a SDG & E; deal without first getting approval to buy Edison’s lines.

“Also, I don’t think Davis really wants to be in the transmission line business,” he said.

Wilk said he believes the SDG & E; proposal has helped Gov. Davis gain credibility for future negotiations while giving the San Diego utility a possible way out of its own collection problems, which have been overshadowed by bigger troubles at Edison and the declared-bankrupt Pacific Gas & Electric.

Senator Joe Dunn, a Santa Ana Democrat active in energy issues, said he isn’t ready to express judgment on the SDG & E; deal, though he’s critical of the state buying grids.

“We still need to examine it,” he said. “But, generally speaking, I don’t think it’s a good idea for us to be purchasing transmission lines.”

Dunn said he is concerned that California taxpayers will be required to bear the costs of any upgrades needed to keep the antiquated transmission lines operating.

“This would involve upgrades that haven’t been done by the various California utilities over the years,” he said. “I don’t think we in government are the best people for operating those types of facilities,we don’t have the needed talent and expertise.”

For now, OC businesspeople are trying to make heads or tails of what a SDG & E; deal might mean to them.

“I honestly have no idea of how a proposed deal like this ultimately is going to affect my bottom line,” said Susan Corrales-Diaz, chief executive of Systems Integrated, an Orange-based supplier of water and electrical utility monitoring gear with a plant in San Diego. “I don’t know all the details on how this is going to trickle back down to us.”

Corrales-Diaz said power bills for her San Diego site have tripled from $5,000 per month in 1999 to $15,000 per month currently. n

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