The Associated Press
Edison International harvested $4.8 billion in dividends from Southern California Edison in the five years leading up to the recent run-up in electricity prices that has pushed the utility to the brink of bankruptcy, an audit released late Monday shows.
The amount transferred by SoCal Edison to its corporate parent between Jan. 1, 1996 and Nov. 30, 2000, would have been enough to cover the massive bill run up by the utility since May as it paid for soaring wholesale electricity during a freeze on its retail rates.
“Basically they took the money and ran,” said Senate leader John Burton, D-San Francisco, one of several lawmakers working on measures aimed at keeping California’s lights on and Edison and Pacific Gas and Electric Co. in business. “Had they not done that they would not be in the financial problem they’re in.”
Assemblyman Fred Keeley, who has been one of the lead proponents of a state rescue plan, had an even stronger reaction.
“It is a little bit like the child who murders their parent and then throws themselves on the mercy of the court because they are an orphan,” he said. “In this case the parent took care to sop up everything they could from the affiliate corporation and is now wringing their hands about how horrible the situation is for the affiliate.”
“It’s not going to go down well around here,” said Keeley, D-Boulder Creek. “It doesn’t go down well with me.”
SoCal Edison‘s expenses for electricity have exceeded its retail prices by $4.5 billion over the past several months, digging a hole that the utility warns could land the company in bankruptcy court.
Edison spokesman Steve Conroy said the utility is studying the audit, but believes it confirms the utility’s statements about its financial situation and creditworthiness.
In its report to the California Public Utilities Commission, which ordered the review, independent auditor KPMG found nothing unusual about the payments that SoCal Edison made to Edison International. Profitable companies routinely pay dividends to their corporate parents or owners.
Edison in turn used the payments to enrich its shareholders, who recently have been battered by a sharp decline in the parent company’s stock price.
In the five years covered by the audit, Edison International paid its shareholders $1.6 billion and spent an additional $2.7 billion repurchasing the company’s stock, a move that also benefited shareholders.
SoCal Edison‘s financial crisis prompted Edison International last month to suspend its shareholder dividends for the first time in 91 years. SoCal Edison‘s other cost-cutting moves included a hiring freeze, ordering executives off without pay Christmas week and eliminating their 2001 merit raises, the audit said.
The PUC was expected to release an audit of Pacific Gas and Electric Co. on Tuesday.
The two utilities, California’s largest, together say they have lost $12.7 billion since June due to soaring wholesale electricity costs the state’s 1996 industry deregulation law bars them from passing onto their customers.
The audit’s release came as state electricity regulators prepared to extend a Stage 3 power alert into Tuesday and the Davis administration announced it has used up a $400 million emergency power-buying fund.
Davis is now using his emergency authority to buy electricity to try to keep the lights on for Edison and PG&E customers, said Mike Sicilia, spokesman for the state Department of Water Resources.
Lawmakers anxiously awaited the utility audits Monday as they worked on a rescue plan for Edison and PG&E that could commit the state to buying power for the utilities’ customers for up to a decade and give the state a stake in the companies.
Gov. Gray Davis believes the Edison audit supports his contention that the state can help Edison and PG&E out of the crisis without a further rate increase for customers, spokesman Phil Trounstine said.
The SoCal Edison audit documents the utility’s prosperity leading up to the power crisis and attempts to explain why the previous windfalls will do little to help bail out the utility from its current predicament.
Virtually all of SoCal Edison‘s profits from the previous years have been distributed to shareholders, lenders and other businesses helping the utility to improve its power plants and transmission lines.
Besides paying the dividends to its corporate parent, SoCal Edison repaid $3.7 billion in long-term debt from January 1996 through November 2000 and invested $4.8 billion in capital projects and other funding.
SoCal Edison pocketed a $2.8 billion profit while generating a cash flow of $6.9 billion during the period covered by the audit.
“This does not paint a devastating portrait of the company,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights, who has pledged a ratepayer revolt on the 2002 ballot if lawmakers bail out the utilities.
With Edison and PG&E denied credit by suppliers, the state began buying power 12 days ago under emergency legislation that set aside the $400 million, and had committed all the money as of late Sunday, DWR spokesman Sicilia said Monday.
Davis then began buying power using his authority under a state of emergency he declared earlier this month, Sicilia said.
Davis said last week that he would use money from the DWR budget to make emergency power purchases if the $400 million ran out. The Davis administration declined to disclose how much it anticipated spending on the short-term electricity buys.
Meanwhile, lawmakers continued work on a measure that would let the state enter into long-term contracts at low rates to buy wholesale electricity and sell it to Edison and PG&E customers.
Another proposal would have the state issue revenue bonds to cover the utilities’ debts and make their customers pay the money back over a decade through recently approved rate increases of 9 percent for residential customers and 7 to 15 percent for businesses.
In exchange, California would be granted long-term options allowing the state to buy low-priced stock in the utilities. If the price rises, the state would sell the stock to help pay off the bonds.
At an Assembly energy committee hearing Monday, SoCal Edison and PG&E attorneys told lawmakers they will fight giving up any stake in their companies in part because they believe their debt will be covered by a rate increase they expect a federal judge will order as early as Feb. 12.
The two utilities have sued to try to win rate increases beyond those approved by the PUC earlier this month.
SoCal Edison attorney Ron Olson said the question instead may be how big of a rate increase customers will face. If lawmakers spread the utilities’ repayment of state bonds over a long period, the rate increase would be about 30 percent; if the utilities must pay the debt all at once, it could top 90 percent, Olson said.
California has been under a Stage 3 alert – imposed when reserves fall or threaten to fall below 1.5 percent – for all but a few hours over the past two weeks as regulators scramble to avoid a repeat of the rolling blackouts that hit Northern California twice this month.
In addition to Edison‘s and PG&E‘s financial woes, high demand, transmission glitches and a tight supply worsened by scarce hydroelectric power in the Northwest and maintenance at California power plants have added to the crisis.