Judge Denies Bid by Edison to Boost Consumers’ Rates

Southern California Edison lost another route out of its financial quagmire Monday, when a federal judge in Los Angeles denied its request for an order that would have forced the state Public Utilities Commission to substantially raise consumers’ electricity rates.

U.S. District Judge Ronald S.W. Lew called Edison’s motion for a preliminary injunction “wholly inappropriate” and an unconstitutional interference with California’s regulatory rights.

In addition to denying Edison a rate hike, Lew upbraided the company’s lawyers and executives for public statements in which they claimed victory over the PUC at a Jan. 8 hearing in his court.

Edison officials had claimed that Lew validated their position that federal law required “all reasonable incurred costs” to be passed along to consumers.

On Monday, he called Edison’s interpretation of his ruling “flatly wrong” and warned: “I don’t want there to be spins by anyone outside this court.”

Afterward, Edison attorney John W. Spiegel asked Lew to set an early date for trial of his client’s lawsuit challenging the PUC’s rate caps.

Lew said he would do so, but strongly indicated that he would probably issue a summary judgment resolving the lawsuit before it gets to trial.

“This is not a do-it-all court for all of your concerns,” he told Edison’s lawyers.

In Sacramento, Monday’s court ruling was greeted with a measure of relief. Assemblyman Fred Keeley (D-Boulder Creek) characterized the decision as “a process ruling” that gives lawmakers time to work out a solution.

“Had [the utilities] gotten a ruling in their favor, it would have shifted leverage,” Keeley said.

As it is, the court order has amplified talk of bankruptcy for Edison and Pacific Gas & Electric Co., the state’s two largest utilities, which serve a total of 24 million Californians.

The two companies have been caught in a squeeze by huge increases in the wholesale cost of electricity during the past nine months, when many factors converged to cripple the state’s power delivery system.

Under California’s 1996 deregulation act, wholesale prices were freed to rise as high as the market would bear, while retail prices--the bills charged to ordinary utility customers--remained capped by the PUC.

The threat that creditors will take Edison to bankruptcy court could increase this week, when the company faces deadlines for two huge debt payments. A spokesman for one major creditor suggested that the utilities’ fate may lie in Gov. Gray Davis’ hands.

“We’re still hopeful that there will be something that comes out of the executive office to prop up the two utilities,” said Richard Wheatley, spokesman for Reliant Energy in Houston. “The governor has gone on record saying he’s got some ideas.”

Davis has been studying how the state best can be reimbursed for what amounts to a $10-billion bailout of the utilities, and is said to be leaning toward the idea of a state takeover of the overburdened transmission grid that carries electricity throughout the state.

The agency that operates the grid said electricity supplies were so tight Monday that it was forced to ask many large users to voluntarily shut off their power.

It was the first such order since Jan. 26, when the PUC said the “interruptible” customers could no longer be fined for disobeying a shut-off order. It was not immediately clear whether the customers--large companies and institutions such as colleges--complied with the order Monday.

It was the 28th consecutive day that the state was under a Stage 3 power alert, the most serious measure of tight electricity supplies.

The shortages have not so far affected customers of the Los Angeles Department of Water and Power, a publicly owned utility that has adequate power to serve its customers.

Edison sought the federal injunction to recover $4.5 billion in debts that the utility says it chalked up to buy power at sky-high prices over the past two years, most of it since May.

Although the PUC granted the state’s utilities a temporary rate hike in January, Edison argued in court Monday that it needed another increase to placate its creditors, who could easily force the company into involuntary bankruptcy.

Utility analysts said the court ruling made bankruptcy a more likely option.

“The risk has increased a little bit,” said Brian Youngberg, a financial analyst with the Edward Jones investment firm in St. Louis. “The creditors, the generators, are losing their patience.”

Edison faces the end of two crucial 30-day grace periods this week. Today is the expiration of a grace period for payment of a $200-million default to 23 banks. A separate 30-day grace period ends Thursday for roughly $600 million in electricity and bond payments.

Edison’s lead banks--Bank of America, Chase and Citibank--all declined to comment, but generators appeared to be willing to wait, if not indefinitely.

“We’re just sitting here watching the whole thing unfold,” said Wheatley of Reliant. “Maybe it’ll become more clear toward the end of the week.”

Besides the deteriorating financial condition of the utilities, he said, Reliant’s other major concern is the state’s unwillingness to use taxpayer money to back all last-minute electricity purchases by grid operators.

The California Department of Water Resources has spent at least $1 billion buying power for the utilities’ customers in the last several weeks.

But department officials have hesitated to pay for power in the so-called “real-time” market, when workers at the California Independent System Operator--the grid jockeys--must buy electricity at the highest available prices to balance supply and demand on the network that supplies 75% of the state.

Davis and lawmakers are considering seeking a variety of assets from the utilities, including a combination of warrants, which are similar to stock options, and the electricity transmission grid. The state would pay the utilities for the assets, money the firms could use to restructure their debt.

“The filing of a bankruptcy doesn’t preclude the state from doing something like a transmission acquisition,” said Sen. Debra Bowen (D-Marina del Rey).

A key element of the discussion among Davis and lawmakers revolves around the level of the utilities’ debt. The companies say they have amassed $12.7 billion in costs they are prohibited from passing along to consumers.

The Senate Energy Committee is scheduled to consider the question of utility debt Wednesday.

In a document to be released today, the state auditor reviewed audits performed by private firms hired by the PUC. The review says the audits found that Edison transferred $4.8 billion to its parent company between 1996 and last November, and that PG&E; transferred $4.7 billion to its parent firm.

Those figures could prove significant as Davis and lawmakers attempt to discount the level of debt amassed by the utilities.

However, state Auditor Elaine M. Howle said in her report to the Legislature that the audits had a “narrow scope,” and “will be of limited value to policymakers in shaping financially sound solutions to the current problem.”

In court Monday, PUC attorney Harvey Y. Morris challenged Edison’s $4.5-billion debt figure, contending that the actual amount may be closer to $2.5 billion.

He also argued that the increase being proposed by Edison would inflict a major hardship on the utility’s customers. Together, he said, two proposed rate hikes would increase residential rates by 18% and commercial rates by up to 30%.

Judge Lew ordered all parties back to court March 5 for a status conference. Edison issued a statement afterward saying it was “encouraged that the court recognizes the importance and urgency of this case and is dealing with it expeditiously.”

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Times staff writers Nancy Rivera Brooks, Carl Ingram, Mitchell Landsberg and Nancy Vogel contributed to this story.