SCE About to Repay Debts of $5.5 Billion

Southern California Edison is expected today to repay $5.5 billion in electricity and other debts lingering from California’s nearly two-year energy meltdown that pushed the utility to the edge of ruin, left Pacific Gas & Electric Co. in Bankruptcy Court and saddled the state with $43 billion in long-term electricity contracts.

The payment of months of accumulated electricity bills and other defaults, which were caused because SCE couldn’t pass sky-high power costs on to customers in 2000 and 2001, is a crucial step toward returning the Rosemead company to the investment-grade credit status that will eventually allow it to resume buying the electricity for its 4.3 million customers.

But the payoff, reached through a lawsuit settlement with state regulators, also locks consumers and businesses in SCE’s 50,000-square-mile territory into the high electricity rates they are now paying until late next year.

“This is the first step in the process that will take some time to get us back to a healthy financial condition to let us resume buying power ... to more completely serve our customers,” SCE President Robert Foster said.

“This is a much better alternative [than Pacific Gas & Electric’s bankruptcy route] for our customers and for the state of California,” Foster said in an interview. “We believe it will get our debts paid down faster, and we believe it will get us back to buying power faster.”

Consumer advocates contend the SCE settlement is a bad deal for ratepayers.

“Edison pretty much got their way,” said Mike Florio, a lawyer with the Utility Reform Network, a San Francisco-based consumer advocacy group that is fighting the SCE settlement in court. SCE’s ratepayers “are pretty much left holding the whole bag, and the deal that SCE got is better than the one that the Legislature failed to pass.”

SCE said the company anticipated closing on a $1.6-billion loan Thursday from J.P. Morgan Chase, Citibank and other banks, which along with cash on hand would allow the utility to cut checks today to power suppliers, bank creditors and holders of SCE’s commercial paper and other notes. A spokesman for J.P. Morgan Chase said late Thursday that the loan was on track to close as scheduled.

After PG&E; Corp.’s Pacific Gas & Electric filed for bankruptcy-law protection in April, SCE took a different road to settle the massive debts it had piled up, choosing to negotiate a settlement with Gov. Gray Davis. But the state Legislature failed to pass an SCE bailout, and the California Public Utilities Commission then secretly negotiated an agreement with the utility to allow SCE to pay off its electricity-related debts primarily using ratepayer funds.

The agreement, structured as the settlement of a federal lawsuit that SCE had filed against the PUC to recover past power costs, was made possible because electricity prices plunged last summer significantly below what SCE was collecting in rates, giving the utility leftover funds to pay its bills.

The PUC agreed to keep those rates, which were increased twice last year, until SCE recovers all of its past power-procurement costs, which is expected to happen by late next year. However, if electricity costs rise again, the rates could be retained for two more years.

SCE also agreed not to pay dividends to its parent, Edison International, until the power costs are recovered. That amount, which is expected to total $1.2 billion, would have been used to pay dividends to shareholders of Edison International.

SCE’s $5.5 billion in debt payments break down this way, according to Moody’s Investors Service: nearly $2.9 billion to power suppliers, $1.65 million to bank creditors, nearly $531 million to holders of commercial paper and $400 million to holders of long-term unsecured debt.

Edison International shares Thursday slipped 5 cents to $15.80 on the New York Stock Exchange.

Moody’s and Standard & Poor’s recently raised the credit ratings of SCE and its parent, but both remain firmly in junk-bond territory, where they fell when the utility ran out of money to pay its bills in January 2001. The state then stepped in to buy power on behalf of SCE, Pacific Gas & Electric and Sempra Energy’s San Diego Gas & Electric.

PG&E; remains under bankruptcy law protection as it tries to win approval for a reorganization plan that would move much of its operations outside the control of state regulators.

But the PUC is crafting a reorganization plan similar to the settlement it reached with SCE.