Edison Posts Loss; Profit at SCE Soars
Edison International posted a third-quarter net loss Friday while its troubled utility saw operating earnings jump threefold, illustrating how Southern California Edison will pay its big debts.
Rosemead-based Edison International said it lost $413 million during the quarter, or $1.27 a share, reflecting a $1.15-billion write-down from a recent half-price sale of two power plants in Britain and sluggish performance by its non-utility subsidiaries. On an operating basis, the company earned $741 million, or $2.28 a share.
At the same time, SCE had operating earnings of $651 million, up from $172 million in the third quarter of last year. Edison International’s stock rose 44 cents to close at $15.94 on the New York Stock Exchange.
SCE’s relative good fortune comes because the utility no longer buys about a third of the power that its customers use--the state is doing that now--and the price of the rest of the electricity has plummeted in the last few months.
Two rate hikes this year and falling natural gas costs, which affect the price SCE pays for about 30% of its contracted power, have reversed the utility’s fortunes and put it in the position of collecting more from customers than it needs to serve them. SCE ran up huge electricity debts beginning in May 2000 as wholesale power prices soared but retail rates charged to customers remained frozen.
SCE collected $518 million more from customers than it spent on electricity from July through September. Without that boost, operating earnings would have decreased $39 million from the third quarter of last year.
SCE’s operating profit illustrates how Edison plans to pay its way out from a $6.35-billion pile of debt: The ratepayers probably will shoulder most of it.
In its earnings report, Edison acknowledged that ratepayers will pay at least half the debt under a deal worked out with the California Public Utilities Commission. Consumer activists contend that ratepayers ultimately will be on the hook for much more.
“The utility had one bad year and now it looks like it’s back to propping up the unregulated affiliates,” said Mike Florio, senior attorney for the Utility Reform Network, a San Francisco-based advocacy group. “It hardly looks like a company that needs a bailout from the public.”
Under the deal with the PUC, structured as a settlement of a federal lawsuit over rates, Edison shareholders will contribute an estimated $1.5 billion to paying off the debt through missed dividends and other corporate contributions. Edison hopes to pay off all its debts by the end of March through a combination of cash and new borrowings and recover those costs by the end of 2003.
Florio’s group has filed a notice of appeal with the U.S. 9th Circuit Court of Appeals; Florio said other parties, including Los Angeles County, are considering joining the appeal.
Utility analyst Paul Fremont said it is wrong to look at the debt repayment so starkly.
“It’s not like you can lay out a group of marbles and say, ‘How much are you getting and how much am I getting?”’ said Fremont, an analyst with Jefferies & Co. in New York. “You either make the utility viable with positive cash flow and liquidity, or you’re dealing with a utility in bankruptcy” facing a host of unknown costs and unable to pay its bills.
Edison’s latest financial report shows “they have some earnings power there and it looks like they’re over the hurdles,” said Douglas Christopher, an analyst with Crowell, Weedon & Co. in Los Angeles.
Christopher said he was encouraged by moves to sell money-losing assets of Edison Mission Energy, which builds and runs power plants around the world.
Edison Mission recently agreed to sell two coal-fired plants in Britain for less than half what the company paid for them two years ago. Edison said Friday that the plants have lost about $80 million this year.
