Its multibillion-dollar rescue plan OK’d by a federal judge Friday, Southern California Edison pledged to repay its debts by next March.
Consumer groups, however, continued to blast the plan as a bailout and said they would appeal the judge’s decision to a higher court. And two big Edison creditors said they still suspect they won’t get paid in full and hinted they could “pursue other remedies” to ensure repayment.
Separately, a leading Wall Street credit agency put the state of California’s bonds on a “watchlist” for possible downgrading. Moody’s Investors Service cited the weakening economy and the mounting threats to the state’s proposed $12.5 billion energy bond sale.
At an early-morning hearing in Los Angeles, U.S. District Judge Ronald Lew approved the rescue package negotiated by Edison and the Public Utilities Commission. Under the deal, Edison dropped a potentially powerful lawsuit against the PUC in exchange for the right to charge customers $3.3 billion to help pay off the utility’s debts. Edison also will spend $1.9 billion of its cash on hand and forego $1.2 billion in shareholder dividends to repay its debts, which total $6.36 billion, said Brian Bennett, vice president of external relations.
Although the deal anticipates Edison will repay the debts by the end of 2003, the utility said it plans to line up bank loans to finish the job by the end of March.
Ted Craver, chief financial officer at the utility’s parent Edison International, called it “the big bang approach – everybody’s going to get paid at the same time.”
But it may not be that simple.
Edison International Chairman John Bryson this week said the company plans to negotiate with many creditors, particularly power generators, in an effort to reduce the debts. Any debt reduction will be used to lower the $3.3 billion to be paid by customers.
That’s brought protests from two generators, Mirant Corp. and Reliant Energy Inc., which had asked the judge to delay approving the PUC–Edison settlement.
After the ruling in court, Reliant said it hopes Edison will be “fair and equitable” with creditors and “will avert the need of creditors to pursue other remedies.” Mirant, which has said it still might try to haul Edison into involuntary bankruptcy proceedings, said Friday it was disappointed with the quick approval of the settlement, just three days after it was announced.
Yet Edison officials said they’re confident they can reach repayment agreements with all creditors. Craver, who’s been holding twice-weekly conference calls with Edison bondholders since the utility began defaulting on its debts in January, said Friday’s call – the 71st – would be the last unless something unexpected happen.
However, consumer advocate Harvey Rosenfield said Lew’s decision will be appealed to the 9th U.S. Circuit Court of Appeals. It could also be challenged through a ballot box initiative, although he said he isn’t sure what form that would take.
“We ultimately will succeed in overturning this dirty settlement deal,” said Rosenfield, head of the Foundation for Taxpayer and Consumer Rights. Mike Florio of The Utility Reform Network, which had asked the judge to reject the settlement, said the PUC gave the utility more than it needed. Florio noted the Legislature had been discussing a rescue package that would have billed Edison customers no more than $2.9 billion – yet the PUC is letting the utility charge ratepayers $3.3 billion. Florio also accused the PUC of not understanding the terms of the Edison settlement.
Edison International’s stock rose 13 cents a share to $15.93.
In putting the state of California on credit watch, Moody’s warned that it could lower the state’s credit rating for the second time this year. Moody’s already lowered California a notch in May to Aa3. On the Moody’s spectrum, Aa3 represents the low end of high-quality credit.
A lower bond rating means higher costs on billions of dollars worth of California bonds. Moody’s said it was considering another downgrade largely because of the problems California was facing in selling $12.5 billion of energy bonds needed to repay the treasury for electricity purchases. The bond sale became less certain this week after the PUC rejected a bond structure favored by bond underwriters, Gov. Gray Davis and Treasurer Phil Angelides.
With the economy weakening, the state faces significant fiscal problems if the bonds don’t sell by next July, when the new fiscal year starts, Moody’s said.