An audit of Southern California Edison Co. ordered by the California Public Utility Commission (PUC) showed the company paid its parent Edison International $4.8 billion in dividends during the last 5 years. The audit also revealed that the utility had $1.226 billion in cash as of Jan. 19, compared to a previous utility estimate of $51.8 million.
The PUC wanted more financial data to help state officials decide what type of relief is needed, if any, to prevent the second largest utility in California from going bankrupt. The utility has amassed $4.49 billion of debt representing the difference between its cost of wholesale power and the amount collected from consumers for that power.
The company warned creditors in late December it would run out of cash by February and would have to default on some payments for debt as well as forego payments to the California Power Exchange in January. Credit ratings agencies subsequently downgraded the utility below investment grade status severely limiting the company�s ability to obtain additional credit.
The state is considering legislation that would allow the company to �securitize� its massive debt to ward off bankruptcy and give the utility an immediate cash infusion to get past the credit crunch. Under such a scheme, bonds sold on behalf of the utility would be used to pay its debt. The bonds would be repaid by ratepayers. The PUC is also seeking data to decide if it should to hike rates above a temporary increase of 2�/kw-hr granted in early January.
Auditors agreed if the utility met all debt obligations as they came due, it would exhaust all cash and borrowing capacity by Thursday. KPMG LLP conducted the audit. But the company�s cash position will not be exhausted because of cash conservation and suspension of certain obligations, according to the audit.
Southern California Edison drew down all available lines of credit and stopped paying bills as they became due. The company also defaulted on certain debt payments and power bills that were due the first 3 weeks of January. The company adopted a $460 million cost reduction plan mostly through projected $77 million in savings on operating and maintenance costs and by deferring $383 million of capital improvements.
In addition, the company said it will lay off 2,000 employees and cut common and preferred stock dividends.
The PUC directed auditors to analyze the general flow of funds between parent Edison International and its the units. Auditors found that for the last 5 years the utility paid dividends and other distributions to its parent of $4.8 billion. Edison International used the funds to pay $1.6 billion of dividends to its own shareholders, repurchased $2.7 billion shares of its common stock, and used the rest for administrative and general costs, investments, and other corporate purposes.
During this period, the utility generated net income of $2.8 billion and net cash flow from operations of $6.9 billion after depreciation, stranded cost recovery, and other differences. It received $5.1 billion from issuing long-term debt, $700 million in short-term financing, and $1.2 billion from the sale of the power plants.
In all, Southern California Edison had net cash inflow of $14 billion over the 5 years, auditors stated. During the same period, the utility spent $13.4 billion on debt payments, capital improvements, nuclear decommissioning funding, and dividends to its parent.
