PUC, Edison reach deal on debts

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Sacramento Bee

Ending months of lawsuits and legislative debate, utility regulators and Southern California Edison struck a deal Tuesday that both say could keep the state’s second-largest utility from following Pacific Gas and Electric Co. into bankruptcy court.

The pact, immediately criticized by consumer groups but welcomed by many creditors and Gov. Gray Davis, would let Edison charge its customers for an estimated $2 billion-plus of the debts it racked up during the state’s electricity crisis.

The utility would contribute more than $1 billion, largely by suspending the dividends it pays its shareholders for at least the next two years.

The numbers are approximate because they would vary depending on wholesale electricity costs and other uncertainties in California’s still-unsettled power picture.

Electric rates won’t go up under the agreement for Edison customers – close to 5 million homes and business in Southern California – but the deal scotches a potential rate decrease that might have come next year.

And some doubts remain over whether it would ultimately satisfy all of Edison‘s creditors, some of whom have been trying to drag the company into bankruptcy.

Power generators, who are owed about $1 billion, will have to sit down with Edison and negotiate “mutually acceptable agreements,” said Edison Vice President Brian Bennett. But overall, he said, the settlement achieves the utility’s long-standing goal of avoiding bankruptcy and regaining its good credit standing.

“It allows us to pay our bills over time,” he said.

The deal emerged as a proposed settlement to a federal lawsuit Edison had filed against the state Public Utilities Commission, which regulates electric rates. It infuriated some consumer advocates who had argued that under deregulation, Edison should have repaid all its own debts.

“This is the ultimate deregulation disaster,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

“In approving this deal, the governor’s unelected appointees did to us what our elected state lawmakers have refused to do for the last 10 months – stick the residential and small business ratepayers of California with the cost of keeping afloat a greedy utility company and its top executives,” he said.

Rosenfield, who had long threatened to challenge any outcome unfair to ratepayers at the ballot box, said the fact that the agreement was reached through a federal court settlement could block his efforts to use the initiative process.

In response to the agreement, Davis applauded the PUC and Edison, and rescinded his call for a third special legislative session to sort out Edison‘s financial woes. Some lawmakers, while skeptical about the shape of the deal, were glad to be done with negotiations.

State Sen. Debra Bowen, D-Marina del Rey, said that while it was too soon to fully size up the agreement, one of her immediate reactions was that a burden had been lifted from her shoulders.

And Assemblyman Fred Keeley, D-Boulder Creek, said consumers should realize they will be paying off Edison‘s debt through their rates even though there are no new increases as part of the pact.

The PUC granted Edison two rate hikes totaling about 40 percent earlier this year, and the utility now is taking in more money each month than it needs to pay its ongoing costs.

“They’ve been hoarding the money,” Keeley said. “They’re going to use the money they hoarded and money they continue to collect.”

He said the settlement is still preferable to an Edison bankruptcy because it avoids the possibility of a reorganization plan like PG&E‘s, which tries to remove the utility’s nuclear power plant and hydroelectric assets from state regulation.

And PG&E, while wishing Edison well, took regulators to task for taking so long to act, saying that much of the state’s power crisis could have been averted if regulators had acted last fall.

“The framework as described by the CPUC appears to be remarkably similar to the rate stabilization plan which PG&E and Edison proposed to the commission back in November 2000, giving rise to obvious questions about why the CPUC couldn’t have agreed to this framework 11 months ago,” the utility said in a statement.

PUC President Loretta Lynch said Tuesday’s agreement, which still has to be approved by a judge, gives Edison far less than utilities sought last fall. It still keeps power plants and power rates regulated, and it doesn’t include the near-automatic, regular rate hikes they sought.

But the deal still could form a potential framework for a PG&E solution if its current effort to use the bankruptcy court to end state regulation falls through, said PUC general counsel Gary Cohen.

“I’d be happy to talk to PG&E,” he said.

Cohen said that after discussion within the PUC, he contacted Edison to kick off the settlement talks on Sept. 14, the day a legislative rescue measure appeared to be going down to defeat.

Davis was kept informed but did not instigate the talks, Lynch said.

Analysts and some who have been waiting for repayment from Edison for months were initially optimistic. “This looks like it’s something that will actually work,” said credit analyst Peter Rigby of Standard & Poor’s Corp. in New York.

“It sounds positive to us,” said John Stout, a senior vice president with Houston power generator Reliant Energy Inc., one of the most aggressive creditors. “We just have to see the details.”

But at least one generator, Mirant Corp., objected to the settlement, saying it fears Edison will try to sue for refunds rather than pay power producers.

Edison‘s Bennett refused to say if the utility plans on reducing some of the debts to generators, but added that Edison “appreciates” generators willingness to hold off on attempts to collect debts.

The deal was made possible largely because the wholesale electricity market has finally settled down and because Edison got two previous rate hikes, experts said.

John Moorlach, chairman of the Edison creditors’ committee and treasurer of Orange County, said Edison and PG&E could have set out a plan like this a long time ago if the state had agreed to rate increases earlier.

By letting Edison recover its power costs from customers, the PUC is “admitting to reality now,” Moorlach said. “I’d had the sense they’d been in denial.”

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