Edison Bailout Plan ‘Workable’
Southern California Edison dug in its heels Thursday over a proposed cut-rate sale of its transmission grid to the state, but otherwise offered grudging support for a rescue package being drafted in the state Assembly.
The bill, whose details keep changing, would allow the Rosemead utility to pay the bulk of its power debt by selling as much as $2.9 billion in bonds to investors. The bonds would be repaid by some Edison business customers and would leave about $1 million in unpaid obligations.
The state Senate passed a $2.5-billion aid package in July, but Edison opposed it as not adequate to return the utility to credit-worthiness so that it can resume purchasing power for its 4.3 million customers.
The bill, with some alterations, appears to return the utility to financial solvency, Edison Senior Vice President Bob Foster told lawmakers Thursday. Southern California Edison, a unit of Edison International, must regain its solvency so that Wall Street will again lend to the company and electricity generators eventually will be willing to sell it power.
Edison reached an agreement with Gov. Gray Davis in April to sell its transmission grid to the state for $2.76 billion, or roughly 2.3 times book value, and the state would allow the utility to sell enough bonds to pay its electricity debts.
The original agreement ran into stiff opposition in the Legislature, which has wrestled with several scaled-down versions of the deal.
During a hearing on the Edison bailout, Assemblyman Roderick Wright (D-Los Angeles) said legislative leaders and Davis needed a straight answer from the utility: Will this rescue plan make you credit-worthy or not?
Foster replied that with some expected changes--notably changes in or removal of an option that would allow the state to purchase the utility’s electricity grid at book value--the deal should allow Edison to regain its financial footing.
“We believe this is workable,” Foster said. “We believe we will not be pushed into bankruptcy.”
But when pressed on whether he could assure legislators that the company would not be dragged into a bankruptcy proceeding by creditors, which would not get paid as part of the bailout, Foster softened his stance.
“There is a chance” of an involuntary bankruptcy, he said. “I can’t guarantee they won’t do that.”
Foster elaborated in an interview and said the Assembly bill is “much more workable than the Senate version.”
However, Edison strongly opposes the provision that would grant the state a five-year option to buy the utility’s transmission grid at book value, or about $1.2 billion, Foster said. Book value is the value of an asset on a company’s financial books and is generally lower than the potential market value of that asset.
“There are legal requirements that we have and obligations of our board” to shareholders that would not allow such a low-priced sale, Foster said.
The biggest improvements from Edison’s standpoint are a widening of the pool of ratepayers that would repay the bonds and a new framework that would allow Edison to recover the future costs of electricity, Foster said.
The Senate version had about 3,600 large business customers bearing the cost of the bonds, while the Assembly rendition extends the pool to nearly 120,000 business customers, he said. In addition, the bill would set up a regulatory mechanism of balancing accounts and procurement review that would prevent another huge accumulation of electricity debt for the utility, Foster said.
Both are necessary to successfully market bonds to investors and to obtain future financing, he said.
“In order for us to convince the financial community to lend us money, they have to be convinced that this is not going to happen again,” Foster said.
