Utilities Seek to Tap Customers for Costs

Southern California Edison said late Monday that it will ask regulators to allow it to recoup its wholesale costs of electricity--an unpaid bill of $2 billion and growing--from customers rather than its shareholders.

California’s electricity crisis is running up a huge tab for the state’s big investor-owned utilities because they have not been able to pass along this summer’s record power prices to customers.

Under Assembly Bill 1890, the landmark 1996 law that deregulated the state’s electricity industry, rates are frozen for the residential and small business customers of Edison International unit SCE and PG&E; Corp.’s Pacific Gas & Electric until March 31, 2002, or until the utilities pay off their “stranded assets”--investments such as nuclear plants that became uneconomical.

Customers of San Diego Gas & Electric, a Sempra Energy unit that paid off those assets more than a year ago, endured a summer of soaring electricity bills before the state Legislature in August capped their rates.

Exactly who will pay these electricity costs--consumers, utilities and their shareholders, or a mixture of both--has not been determined. Consumer activists contend that AB 1890 handed utilities a sweet deal, allowing them the opportunity to recover 100% of their stranded assets, and that the companies should not try to change the rules now.

In a filing to be made today with the Securities and Exchange Commission, SCE said it already has rolled up enough credits through the pending sale of generating assets and the valuation of its hydroelectric properties to have paid off its remaining $1.3 billion in stranded assets.

SCE said the California Public Utilities Commission is misinterpreting AB 1890, which the utility’s executives believe leaves them liable only for the costs of their stranded assets, not for the cost of buying electricity for their customers.

“These aren’t stranded costs, these are procurement costs,” said Jim Scilacci, SCE chief financial officer. “We don’t believe we were put at risk [by the law] for operating costs.”

SCE will file with the PUC in the next week or so for authority to recover these electricity “undercollections” from customers when the rate freeze is lifted, Scilacci said.

“If we can’t collect it from ratepayers, it becomes potentially a cost for shareholders,” he said. To avoid that outcome, SCE said it is considering litigation to ensure recovery of the electricity costs.

PG&E; is expected to file a similar petition soon with the PUC asking for an end to its rate freeze based on the $2.8-billion valuation of its hydroelectric properties, which the utility is proposing to transfer to an unregulated sister company.

PG&E; recently appealed the PUC’s refusal to allow the utility to pass the full cost of electricity to customers after the rate freeze ends, and to allow undercollection of electricity costs to be offset by overcollection of stranded costs, including electricity revenue from the remaining power-generating properties. The California Court of Appeal recently declined to review the petition. PG&E; a week ago asked the California Supreme Court to review the Court of Appeal decision.

The uncertainty surrounding these mounting debts, which now total more than $5 billion for the three utilities, caused three Wall Street debt rating agencies to recently lower the outlook to negative for the three utilities or their parent companies. The debt ratings themselves, however, have not changed.