Court Ruling on Edison Bailout Could Restore Utility's Health
By KATE BERRY
Not long ago, Southern California Edison, the state's second-largest utility, was written off as a casualty of California's energy crisis a backer of deregulation that nearly got done in by its own attempts to influence energy policy.
Yet the politically savvy Edison is just one court ruling away from emerging from its financial thicket.
By Aug. 27, the California Supreme Court is expected to rule on the legality of the 2001 settlement agreement that saved Edison from bankruptcy.
The rescue package, brokered in private with the state's Public Utilities Commission, allowed Edison to collect $3.6 billion from its customers to recoup exorbitantly high energy costs it incurred during the crisis.
The Utility Reform Network, a San Francisco-based consumer rights group, sued to overturn the bailout last year, arguing that the PUC had no authority to broker such a deal.
The federal Ninth Circuit Court of Appeals turned the case over to the state Supreme Court, which heard oral arguments in May. The outcome of the Supreme Court ruling will determine whether Rosemead-based Edison can return to financial health and reinstate its dividend by year-end.
If the ruling goes against state regulators and Edison, the energy holding company will have to put off its plans and its creditworthiness would remain clouded while it pursued a federal lawsuit that its chairman and chief executive, John Bryson, vows would be revived.
"We've overcome a lot of obstacles," Bryson said. "We believe our position is very strong, as do a large number of interveners from the governor on down."
Those include lawyers for the PUC, which refused during the power crisis to allow Edison to pass costs onto ratepayers and later changed its mind.
No explanation was ever given, although the bailout came after Edison failed to get one in the state Legislature, then threatened to file for bankruptcy and sued the PUC in federal court to get the money.
While Edison supported the 1996 deregulation plan it even had a hand in drafting the legislation Bryson blames regulators for improperly implementing it.
"California did deregulation so poorly, it was so ill-considered and rashly implemented that it hurt the customers, it hurt our company, it hurt everybody and it hurt the broader economy in California," Bryson said.
Matt Freedman, a lawyer for The Utility Reform Network, a consumer group, said the settlement set a precedent that, if left to stand, could have an impact far beyond the energy crisis. TURN argued that the agreement violated the 1996 deregulation statute that froze utility rates at then-artificially high levels and allowed Edison to pocket $7.5 billion in so-called stranded costs.
Edison has invoked a little-known law called the "filed rate doctrine" to support its claim that it is entitled to collect all the power costs from the energy crisis.
As a result, Bryson dismissed any suggestion that Edison would have to refund customers the $3.6 billion in over-collections if the state Supreme Court ruled against the PUC.
"The court won't address the issue of a refund," he said. "If it went negative, procedurally, then the PUC would have to do what the court instructs them to do. But if it goes negative against us on the substantive grounds, we would go back to pursuing the (federal) lawsuit."
The market has been betting on a favorable ruling, sending shares of holding company Edison International to a 52-week high of $17.54 on Aug. 13. The stock, which closed at $17.27 that day, is up 36 percent in the past year.
Nevertheless, the utility remains saddled with a credit rating that is below investment grade.
It is in negotiations with banks and creditors of its non-utility power generation unit, Edison Mission Energy, to restructure debt payments of $275 million due in September and $911 million due in December. In the second quarter ended June 30, Edison International reported net income of $24 million, compared with $665 million for the like period a year ago. Revenue rose 11 percent, to $3.1 billion.
The results included a $150 million charge to write down the book value of eight Illinois power plants held by Edison Mission Energy. The year-ago results included a $480 million gain.
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