Edison May Pay Sister Firm First
Near-bankrupt Southern California Edison confirmed Friday that it could pay a profitable sister company millions of dollars ahead of other creditors, immediately prompting charges of favoritism.
The planned payment to Edison Mission Energy irked some creditors, who questioned the fairness of the transaction during an SCE conference call with holders of defaulted notes and bonds.
One creditor asked whether the payment would amount to “self-dealing” by the companies and their parent, Edison International of Rosemead.
The transaction would result from SCE’s agreement to pay mostly small and alternative power generators 10% of the $1.3 billion that the utility owes them for electricity purchases. The deal, crafted over the last two weeks, is designed to keep the companies supplying power and to dissuade them from filing an involuntary-bankruptcy petition against the utility.
SCE owes $472 million to four generators that are half-owned by Edison Mission Energy. Mission Energy’s share of that debt is $234 million, according to Securities and Exchange Commission filings. Under the agreement, the power plants stand to collect nearly $50 million of what they are owed because they are among a group known as “qualifying facilities” eligible for the initial payment.
The plants produce a combined 1,210 megawatts--enough to serve nearly 1 million California homes--making them far larger than most of the other generators that Edison owes and that can take advantage of the pact.
Jim Scilacci, SCE’s chief financial officer, defended the transaction, noting that Mission Energy had long-standing investments in some of the small power generators but was not managing the companies. He said Edison jumped into the business years ago at the urging of regulators and politicians.
“This isn’t self-dealing,” Scilacci responded. “It’s been that way for over 15 years.”
The Mission Energy-affiliated plants qualify for the payment because they produce power from “cogeneration”--meaning they produce heat and electricity from a process usually fueled by natural gas.
As of Friday, SCE had reached agreement with most of the small generators of wind, solar and other forms of renewable energy, sending out checks totaling nearly $60 million. Scilacci said the utility had yet to pay the gas-fired plants related to Mission Energy.
Creditors at first welcomed the deal to pay the small generators, thinking that the alternative and renewable energy suppliers were the most likely to push SCE into bankruptcy.
In providing badly needed funds to many of these generators, the agreement seeks to reduce the chance the companies would go to U.S. Bankruptcy Court to exact cash from the utility, said Paul Fremont, an analyst with Jefferies & Co. in New York.
SCE’s finances have unraveled in the last year as it built up billions of dollars of losses from electricity purchases when energy prices spiked.
It owes large power providers $1.1 billion, banks $1.7 billion and other note holders $1.3 billion. The utility had about $1.5 billion in cash as of Friday, Scilacci said.
In another development, SCE said a state appellate court Wednesday blocked efforts by the city of Long Beach to put a $9-million lien on one of the utility’s bank accounts. Though the amount of money is relatively small, the ruling gave the utility more breathing room as it seeks to fend off insolvency.
Long Beach obtained the lien in May, seeking payment for sales from a trash-fired electricity plant. SCE appealed the lien, fearing that if a small generator such as the Long Beach plant could collect money, other creditors might put the company into involuntary bankruptcy.
The thinking is that such creditors would want to block Long Beach from getting its claim paid first because that would leave a smaller pot for the remaining creditors to tap.
The creditors would have 90 days from such a payment to take action, according to bankruptcy law; otherwise, the deal could not be undone by a bankruptcy judge.
Removing the lien essentially resets the clock, said Nellwyn Voorhies, a San Diego lawyer who represents SCE bondholders.
SCE said the 2nd District Court of Appeal ruling blocked the lien until a Sept. 25 hearing.
Although unsecured creditors remain a threat to the utility, they still have little to gain from forcing SCE into bankruptcy, Voorhies said.
“You do it--and then what?” she said, noting that creditors have yet to make any gains from the bankruptcy filing of Pacific Gas & Electric.
The Northern California utility, an arm of PG&E; Corp., sought protection from creditors April 6 after also posting big losses on electricity purchases.
Shares of Edison International rose 8 cents to close at $11.98 on the New York Stock Exchange on Friday. They are down from a 52-week high of $26.63 in September but have risen almost 9% this month.
