Execs say debt load can’t be eased without legislative help. A deadline passes without action.
Los Angeles Times
Legislative action in the next month probably will determine whether Southern California Edison escapes filing for bankruptcy, executives at the troubled electric utility said Tuesday.
Edison executives said they were resigned to seeing the original deadline for state lawmakers to craft a rescue plan expire today without action but expected lawmakers to address the issue when they return to Sacramento on Monday.
Theodore Craver Jr., chief financial officer of Edison International, the utility’s corporate parent, said the next few weeks will prove crucial as the Legislature heads for its next recess Sept. 15.
“We need legislative or regulatory relief to get the revenue to pay” back debt, Craver told creditors in a conference call.
The Legislature adjourned last month without agreeing on a rescue plan for the Rosemead-based utility, which piled up billions of dollars in losses on power sales when energy prices spiked late last year and earlier this year.
The state Senate passed a bill last month that would allow SCE to pay off $2.5 billion of its debt through collections from ratepayers but still leave the company with about $1.4 billion in debt and interest charges that it would have to finance on its own. SCE, which has about $1.7 billion in cash, said such a plan would leave it short of the investment-grade credit ratings it needs to refinance debt and conduct business.
Besides paying off its back debt, Southern California Edison also needs to have the state change the rules of deregulation to allow the utility to routinely recover what it pays for electricity as wholesale prices rise or fall, Craver said.
Credit-rating and Wall Street analysts agree that without such a legislative change, investors would be reluctant to lend the company money because a sudden rise in the cost of power could tip the utility back into insolvency.
An Assembly proposal would be more generous, allowing the utility to use ratepayer-financed bonds to cover all but $500 million of its past debt. The bill has passed through several committees but has yet to be voted on by the full Assembly.
An earlier agreement between the utility and Gov. Gray Davis called for the state to buy SCE’s transmission lines for $2.8 billion and issue ratepayer-supported bonds to pay off its remaining debt. Under terms of that agreement, the Legislature was to have passed enabling legislation by today, but the plan failed to gain the support of lawmakers.
Separately Tuesday, the utility filed documents with the Securities and Exchange Commission warning–as it has for months–that without state action it could be headed into U.S. Bankruptcy Court.
SCE said it had a total of $3.3 billion in unpaid and overdue debts as of July 31. That includes $1.2 billion to a group of generally small or alternative-power generators known in the industry as qualifying facilities; $878 million to the California Power Exchange, the now-defunct power market in which the utilities and large independent power generators did business; $931 million in defaulted notes and bonds; and $230 million in other debt.
After factoring in its cash holdings, SCE has a deficit of $1.9 billion, the company said in its filing.
“It’s pretty clear that they will use the threat of bankruptcy to get as much money out of ratepayers as they can,” said Heller of the Foundation for Taxpayer & Consumer Rights, a Santa Monica-based activist group.
Despite the dire warnings by Edison, its financial situation has improved because of a rate increase of 3 cents a kilowatt-hour that went into effect in June and declining prices for natural gas, a key component in generating electricity.
Nevertheless, the utility has told the PUC that it fears another rate increase will be needed to cover its own power costs, the projected electricity costs of the California Department of Water Resources and other transition costs. The water agency has been buying electricity for SCE and PG&E Corp.’s Pacific Gas & Electric Co. since mid-January, when the utilities ran so low on cash that generators refused to sell to them.
Pacific Gas & Electric said Tuesday that the agency had vastly overestimated the amount of money it needs to pay for the agency’s power purchases. The San Francisco-based utility said the state overestimated both the price of power on the spot market and how much natural gas will cost in future years.
Shares of Edison International rose 8 cents to $14.06 on the New York Stock Exchange.