The governor orders lawmakers to reconvene to solve the utility’s problems, but bankruptcy might happen first.
Los Angeles Times
Now that the state Legislature has failed to pass a bill to rescue Southern California Edison, the state’s second-largest electricity utility lingers in a dangerous limbo between nervous creditors and a rebellious state Senate that is refusing to back the governor’s plan to repair Edison‘s finances.
Gov. Gray Davis late Friday told lawmakers to return in two weeks for a special session devoted only to solving Edison‘s financial troubles and getting the state out of the power-buying business.
But many creditors, lawmakers and even consumer advocates wonder if the utility can stay out of Bankruptcy Court long enough for the lawmakers to reconvene.
Edison ran up billions of dollars in debts since last year by purchasing electricity for more than it could charge customers when energy prices spiked. The company needs a plan to pay off about $3.9 billion in debts to escape bankruptcy.
“Creditors have shown tremendous patience and goodwill in letting things play out to this point, but I would not be surprised for some group of creditors to put the utility into involuntary bankruptcy on Monday,” said Chriss Street, the head of Street Asset Management of Newport Beach and an advisor to several unsecured creditors of Southern California Edison.
“If Edison goes bankrupt tomorrow, then there is no need for a special session. And if they are not bankrupt in October, they have been lying to us all along,” said consumer activist Doug Heller of the Foundation for Taxpayer & Consumer Rights in Santa Monica. Others are withholding judgment.
That assessment, however, could change early next week as the big generators and other creditors get back to their offices, consult with their attorneys and outline a strategy that responds to the state’s failure to reach an agreement on how to repair Edison‘s finances.
The state Senate adjourned without voting on an Assembly rescue plan supported by Edison and Davis. That plan would have allowed Edison to issue up to $2.9 billion in bonds to pay off most of its $3.9-billion debt. A slice of the electricity bill payments from the utility’s top 180,000 business customers would pay the debt service on the bonds.
But Senate President Pro-Tem John Burton (D-San Francisco) declined to bring the bill to the Senate floor, saying it did not have the votes to pass.
Edison praised the governor’s Friday-night call for a special session. “We can’t emphasize enough how important we feel what the governor did last night was,” Brian Bennett, Edison vice president of external affairs, said Saturday. “It was courageous and it was a strong signal that he means business, that he believes it’s in the best interests of the state that our company not go bankrupt. And so do we.”
Bennett said Edison‘s creditors have been supportive, noting that the utility’s bankers last week granted the Rosemead-based company a two-week extension delaying the due date on $200 million in defaulted loans.
Legislative legal experts said Davis has the power to call lawmakers back into session. But it is questionable whether Davis can force them to do much more than meet once. One advisor to the Senate leadership said both houses could be convened and then adjourned just seconds later, without considering any proposals.
“It is probably beating a dead horse,” Brian Youngberg, an analyst with the Edward Jones brokerage in St. Louis, said Saturday. “Time has proven that the California Senate and the Assembly are not on the same page on this. I would expect a bankruptcy by Edison in the next several weeks.”
Despite the failure of the rescue plan to garner Senate support, some lawmakers say there is still time to craft an agreement.
“I have a problem with bankruptcy, because in bankruptcy the only ones who matter are the creditors. And these are people we know have already gouged us,” said Sen. Kevin Murray (D-Los Angeles).
Gov. Davis has argued that a bankruptcy by the utility would harm the state and even endanger a portion of Southern California’s power supply. Edison gets almost 75% of the electricity it supplies customers from its own generation and from the state Department of Water Resources. The remainder comes from a group of small generators.
If Edison goes bankrupt, as much as 3,000 megawatts of that generation could be lost, Davis said in a statement.
“We worked hard to bring this energy, which was crucial in avoiding blackouts, back on line earlier this summer,” Davis said.
Before Davis’ comments, one creditor who represents a large group of Southern California Edison bondholders said he believed those alternative generators would continue to honor agreements to sell power to the utility because it is in their financial interest.
He said that both the small generators, to whom Edison owes about $1.2 billion, as well as bond and note owners, holding a collective $931 million in defaulted utility debt, will continue to “show patience” in the near term.
Many in Sacramento seem unconcerned that the lack of action may push Edison into Bankruptcy Court, following the path of Pacific Gas & Electric, which filed for protection from its creditors in April after concluding there was little hope of a legislative rescue.
“I don’t desire bankruptcy,” said Sen. Joe Dunn, (D-Santa Ana), “but I don’t fear it either. And if there’s no other alternative, I don’t stand in fear of the reasonableness of the Bankruptcy Court process.”
Sen. Mike Machado (D-Linden) is even more skeptical. Why, he asked, should lawmakers risk $2.9 billion of taxpayer money on something that wasn’t a guaranteed solution? “Tell me why bankruptcy is a worse situation than what’s being proposed here,” he said.
Edison‘s Bennett sharply disagreed. Even though PG&E‘s operations have not been disrupted so far, “that doesn’t mean that you couldn’t have a slow and steady deterioration of service over the years while they are in bankruptcy, because the interests of the creditors come first,” Bennett said.
Bennett would not say if Edison has taken steps to prepare for a bankruptcy filing. If the utility moves into bankruptcy, it is expected to follow the strategy pursued by PG&E: to work up a plan of reorganization while it pursues a lawsuit against the state.
A court victory could allow Edison to pass its energy debts on to customers through higher rates,allowing the company to pay off creditors.
Times staff writer Nancy Vogel contributed to this story.