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Los Angeles Times

The parent company of Southern California Edison announced Friday that it will eliminate 400 contractor jobs, suspend the quarterly dividend paid to its common shareholders and cut $ 100 million in capital spending as part of its effort to stave off financial collapse brought on by the state’s electricity crisis.

Edison International’s belt-tightening measures were pivotal in the decision by the Standard & Poor’s debt rating service Friday to defer any move to downgrade $ 15 billion in debt issued by Edison and its San Francisco-based counterpart, PG&E Corp., which reaffirmed its own cost-cutting moves begun last month.

“To preserve our ability to provide electric service and remain viable, we are taking these immediate cash-preserving actions,” Edison Chairman John E. Bryson said in a statement Friday.

A downgrade by S&P–which also cited a decision Thursday by the California Public Utilities Commission that paves the way for probable consumer rate increases next month–could have sent the state’s two biggest utilities reeling toward bankruptcy and jeopardized electricity deliveries in the state by branding them as high-risk borrowers.

But even with this week’s developments, bond raters, including S&P and Moody’s Investors Service, made it clear that the two utilities are not out of jeopardy–and still face possible insolvency. Future downgrades could hinge on what sort of rate increases and cost-recovery plans are outlined at the PUC meeting Jan. 4.

Indeed, the utilities’ continuing precarious status has prompted Gov. Gray Davis to seek a meeting Tuesday with Federal Reserve Chairman Alan Greenspan to discuss the electricity crisis and “see if he has any ideas,” in the words of a Davis spokesman.

Analysts noted that the PUC stopped short of suggesting specific rate increases this week and that longer-term issues remain unresolved. The key: how and when Edison and PG&E could collect $ 8 billion in so-called undercollections, or the difference between their wholesale electricity costs and the amounts they have collected from customers, whose rates are frozen.

“While we don’t have a whole lot in terms of positive development, we have seen some steps in the right direction that provide us with some comfort to feel that insolvency is not as imminent as was communicated by the utilities earlier this week,” said S&P director David Bodek.

Saying it too will withhold action until after the PUC meeting, Moody’s said it is imperative that Edison and PG&E “obtain the right to immediately raise rates by a sizable amount and . . . obtain the unquestioned and unambiguous ability to recover past and future wholesale procurement costs.”

Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, called the 400 laid-off workers “sacrificial lambs in a high-stakes political drama.”

“This is a company that claims it’s near bankruptcy, needs a multibillion-dollar bailout, and their idea of belt-tightening is to fire 400 people on Christmas Eve.”

Analysts speculated that the PUC may raise rates as much as 30% and approve the idea of “securitizing” the utilities’ $ 8 billion–and counting–in outstanding electricity debt. That would mean authorizing Edison and PG&E to sell bonds to pay their debts all at once, then assess consumers for the bond payments in the form of a surcharge over a period of as long as five years.

Shares of Edison and PG&E rebounded after plummeting to 52-week lows the day before. Edison gained $ 1.81 to close at $ 16.25 and PG&E rose $ 1.91 to $ 20.06, both in heavy trading on the New York Stock Exchange.

Edison‘s suspension of its dividend of 28 cents per common share–on which many of its 85,000 common stockholders count on for income–will save about $ 84 million. The status of future dividends is unclear, Edison said. The contract workers to be laid off are spread throughout company operations.

Squeezed by banks hesitant to lend the utility more money at the same time wholesale electricity prices show no sign of dropping, SCE Chief Executive Steve Frank said Tuesday that the utility had already frozen hires, stopped giving community donations and halted new contracts. Layoffs, he said then, would be the next step under the utility’s contingency plan.

“We’ve made it clear that the state needs to act decisively, and that means a rate increase,” Frank said. “There’s no way we can continue to be the banker for our customers.”

Harry M. Snyder, senior advocate for Consumers Union in San Francisco, called the Edison layoffs “cruel” but not surprising given that Edison in the last two weeks has warned of bankruptcy and the possibility that it would no longer be able to buy electricity and could even resort to rationing power to its customers.

“This is furtherance of the scorched-earth policy that Edison has engaged in,” he said. “They told the governor they were going to go into bankruptcy. . . . Their bluff was called, so they had to come up with some other dramatic action.”

Consumer Watchdog
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