Keeping the Sharks at Bay

A federal judge on Monday spared Southern California Edison customers from large immediate rate increases but also may have nudged the giant utility closer to bankruptcy. Power generation companies and power banks are circling the firm like sharks, hoping to get paid as much as they can for electricity they sold to Edison this past fall and this winter.

If the sharks will be patient, they may be better off than if they insist on forcing Edison into bankruptcy, which essentially would put the company under the control of a federal bankruptcy court. If the generating companies give California reasonable time to work through the crisis, they are likely to be paid more of what they’re owed. Edison serves 4.3 million customers in Southern California; its service area does not include the city of Los Angeles, which has its own power system.

Edison had sought a federal court order allowing it to pass on to customers the $4.5 billion in debt the firm says it incurred buying wholesale power on the wild open market in recent months. The requested rate increase--18% for homes and 30% for businesses--would have allowed Edison to pay what it owes to generators. However, U.S. District Judge Ronald S. W. Lew declined to eliminate the rate freeze imposed in 1996 when the Legislature passed its flawed electric deregulation plan. He also indicated he will soon dismiss the firm’s lawsuit without a full trial. Pacific Gas & Electric Co. has brought a similar action in federal court but probably faces the same outcome.

As it stands, the generators will not sell any more power directly to the utilities because they reasonably fear that Edison and PG&E;, unable to borrow more money, cannot pay for it. In the meantime, the state has taken over the purchase of power to keep the lights on.

Gov. Gray Davis and other state officials also are working on a plan to relieve the utilities of much of their debt, while at the same time determining how much of the debt the utilities’ parent companies should and could shoulder. Recent revelations that the parent company of Southern California Edison kept huge tax overpayments by the utility make every rescue dollar harder for taxpayers to accept.

The bailout plan that goes to the Legislature is likely to involve a state takeover of some utility assets, such as the electric power transmission system. The utilities would use the money from the state to pay the generators, and taxpayers would be left with something of value. This also stands to be a more certain course for the power producers than forcing Edison and PG&E; into the murky world of bankruptcy.