Deal OKd to Avert Edison Bankruptcy
A federal judge approved a settlement Friday designed to keep Southern California Edison out of bankruptcy, calling the agreement fair and “not a bailout by any means.”
The settlement begins to write an end to the Edison saga--a tale of deregulation gone bad and power debts left unpaid by the state’s second-largest electricity utility.
The same problems put Pacific Gas & Electric Co. in Bankruptcy Court, where it awaits an evaluation of a complex refinancing plan that would repay its creditors while splitting the San Francisco company in two.
And although the state managed to avoid the plague of blackouts expected during the summer, it remains saddled with more than $10 billion in electricity debts amassed while buying power for the customers of Edison, PG&E; and San Diego Gas & Electric since January. A running dispute between state regulators and Gov. Gray Davis has left in doubt a planned $12.5-billion bond sale to repay the debts.
The outlook for Southern California Edison was looking dim after the state Legislature adjourned Sept. 15 without passing a bill to help the Rosemead-based utility out of its financial mess.
But on Tuesday, Edison and the state Public Utilities Commission unveiled a rescue plan that would allow the firm to repay $3.3 billion in electricity debts using shareholder and ratepayer funds.
The deal, structured as a settlement of a federal lawsuit filed by Edison against the utilities commission, would keep customer rates at their current levels for at least two years. Edison would refrain from paying dividends to its shareholders for the same period.
Consumer groups have attacked the settlement as a backdoor bailout reached in secret that puts an unfair burden on the utility’s customers and keeps rates artificially high. Even some key lawmakers criticized the deal as more generous than what the Legislature had considered.
It took U.S. District Judge Ronald S.W. Lew only a few minutes Friday morning to begin wrapping up Edison’s 18-month descent into insolvency and political and regulatory turmoil.
Lew took the bench shortly after 9 a.m., said he had fully considered all the written arguments, and had reached a final decision. He said he would entertain no further legal arguments.
He said the proposed settlement is “fair, adequate and reasonable to the parties, the shareholders and to the public and is not a bailout by any means.”
When the judge concluded, Michael J. Strumwasser, attorney for the Utility Reform Network, asked to be heard so he could request a stay, pending an appeal to the U.S. 9th Circuit Court of Appeals. Lew refused.
“The case is closed,” the judge said.
Outside the courtroom, Strumwasser said the San Francisco-based consumer group would file its appeal as soon as Lew formally signs off on his ruling.
“Our papers are already drafted,” Strumwasser said.
“The PUC acted in flagrant disregard of state law,” he said. “The PUC can’t make policy in a secret negotiation.”
He also charged that under terms of the deal, Edison’s ratepayers could be liable for $3.3 billion in past debts, not the $2.1 billion claimed by the commission.
The disputed $1.2 billion represents dividends that Edison has agreed won’t be issued but will be used to pay debts. The consumer group contends that the dividends are being used to reduce a larger debt balance to $3.3 billion rather than to cut the $3.3-billion total to $2.1 billion.
“Not only is it illegal, but it’s also a bad deal,” Strumwasser said. Another lawyer said the consumer group is considering challenging the commission’s actions in state court.
But Stephen Pickett, an Edison vice president and its general counsel, said the settlement is a fair compromise. He expressed confidence that the Court of Appeals would uphold Lew’s ruling.
Gary Cohen, the commission’s general counsel, called the decision an important first step in establishing a more normal, traditional relationship between Edison and the commission and in getting the state out of the energy procuring business.
“We want Southern California Edison to be credit-worthy,” Cohen said. “This, frankly, is the only way to do it.”
Cohen said he expects electricity rates to drop after 2003 when Edison is expected to finish paying its creditors.
Asked about the possibility of Edison being forced by creditors into involuntary bankruptcy, Cohen said that with the federal settlement in place, any such move would be an uphill battle.
