Consumer groups irate over secret deal to keep utility out of bankruptcy
The San Francisco Chronicle
U.S. District Judge Ronald S.W. Lew called the settlement “fair, adequate and reasonable to the parties, the shareholders and to the public, and is not a bailout by any means.”
But consumer groups blasted the decision and pledged to fight the plan, which was secretly negotiated over 10 days. It keeps current Edison customer rates in effect until at least 2003.
“This is an incredible incursion of federal jurisdiction on state regulation,” said Michael Strumwasser, an attorney for The Utility Reform Network.
Under the terms of the plan, Edison will contribute $300 million, and no dividends will be paid to shareholders until at least 2004 — a potential $1.2 billion loss to them.
Edison officials said the company hopes to pay all of its creditors by February.
“We’re looking for a big bang in terms of paying everybody in the first quarter (of 2002),” said Ted Craver, Edison‘s chief financial officer.
Edison attorney Steve Pickett praised the ruling, calling it “a very critical first step necessary to create the cash flow to pay creditors.”
He said it was too early to say when the company would start paying its larger creditors.
The possibility still exists that unpaid creditors could try to force the utility into involuntary bankruptcy, Pickett said.
Reliant Energy and Mirant Corp., which are owed more than $260 million by Edison for power purchases, also filed a joint objection with Judge Lew, saying the agreement does not spell out exactly how they will get paid.
Yesterday, the companies sounded warning shots that they may not be patient for too long.
Patrick Dorinson, a spokesman for Mirant, said Edison‘s actions speak louder than their words at this point.
“We are disappointed in this rush to judgment when this complex secret agreement was made public just a few days ago,” he said. “There is still no process established to ensure that Mirant’s debts will be paid in full.”
“Our hope is that Edison‘s commitment to pursue the fair and equitable resolution of the claims of its creditors is legitimate and will avert the need of creditors to pursue other remedies,” said Richard Wheatley, a company spokesman.
Lawyers for TURN and Los Angeles County, which is one of Edison‘s largest customers, complained in their Wednesday filings that Lew had given them only 24 hours to offer comments on the proposed settlement.
TURN, in its filing, also said the PUC had violated state law by secretly deciding regulatory issues without public hearings.
The settlement stems from a federal lawsuit that Edison filed against the commission over rate-setting authority. But TURN said yesterday that it is looking into whether there are grounds for appeals in state court.
The PUC, in its reply, said it was “sensitive” to the objection, but noted that state law allowed the agency to consider litigation in closed session.
“When faced with the extraordinary circumstances of the threat of federal court litigation and a potential bankruptcy, the commission must have the ability to resolve litigation and protect the public interest,” the PUC filing said.
Davis — who had made getting a deal done his top legislative priority — had scheduled lawmakers to come back from vacation to keep working on a solution, despite enough opposition to block almost any agreement.
Yesterday, the Democratic governor praised the decision.
“My thanks goes to Judge Lew, and all the parties whose hard work protected thousands of jobs and ensured there will be no rate increase for Edison‘s customers,” he said.
“This is another sign of the Davis administration’s feeling that it has imperial authority to do what it wants,” said Harvey Rosenfield, executive director of the Foundation for Taxpayer and Consumer Rights.