Southern California Edison issues warning on cost recovery
Southern California Edison Co., a unit of Edison International, said May through August revenues from customers were insufficient to cover the cost of providing service, a condition that is expected to prevail at least through September. As a result, the big California utility said it has used virtually all of its authorized capacity for short-term borrowing and will have to seek authorization from the California Public Utilities Commission to issue additional short-term debt.
Southern California Edison Co. (SCE), a unit of Edison International, said May through August revenues from customers were insufficient to cover the cost of providing service, a condition that is expected to prevail at least through September. As a result, the big California utility said it has used virtually all of its authorized capacity for short-term borrowing.
The company said it currently is restructuring certain credit arrangements and arranging additional short-term borrowing capacity to meet its liquidity needs. In a filing with the US Securities and Exchange Commission, SCE said it expects to be able to repay short-term borrowings from the proceeds of generating asset divestitures and recovery of transition revenue account undercollections.
In early trading Tuesday, Edison International was up 1/8 at 23 1/16.
SCE said it believes that it will be able to obtain sufficient financing on acceptable terms and conditions. In addition, SCE will need authorization from the California Public Utilities Commission (CPUC) to issue additional short-term debt. SCE has filed applications for authorization with the CPUC and said it expects to receive favorable decisions in the near future.
If events were to occur that make the recovery SCE's costs no longer probable, the company warned it would be required to write off the unrecoverable portion as a one-time charge against earnings.
The big California utility said it also will file in the near future an application with the CPUC seeking authority to recover its transition revenue account undercollections after the end of a statutory rate freeze period. SCE said it is also considering other options, including litigation, to ensure recovery of these costs.
SCE said as of August 31, undercollections total about $1.97 billion.
The company previously disclosed in its June quarterly report it has been experiencing adverse impacts from unusually high prices for energy and ancillary services procured through the California Power Exchange and the California Independent System Operator.
Under existing decisions of the CPUC, SCE said it can carry over transition revenue account undercollections from month to month, and may recover the undercollections from future positive revenues until the end of a statutory rate freeze.
Under California law, the statutory rate freeze period ends for SCE byMarch 31, 2002, or the date when SCE has recovered all of its generation-related assets and obligations (commonly referred to as ``stranded costs'').
Thus far, the CPUC has denied requests by SCE and other California utility companies to allow recovery of transition revenue account undercollections after the end of the statutory rate freeze. The CPUC has also prohibited California utility companies from offsetting these undercollections with overcollections of other stranded costs. The company said these decisions predated the unforeseen runup in wholesale market prices this summer.
SCE noted Pacific Gas & Electric Co., a unit of PG&E Corp., failed on appeal to the California Court of Appeals to overturn the CPUC decision. On Sept. 18, 2000, Pacific Gas & Electric Co. filed a petition with the California Supreme Court for review of the decision of the Court of Appeal.
SCE said it believes that the CPUC's prior refusal to allow recovery of the transition revenue account undercollections past the end of the statutory rate freeze is based on a misinterpretation of California's restructuring law. The company noted the law placed California electric utility companies at risk for recovery of their stranded costs, but did not place them at risk for recovery of the costs of procuring electricity for customers.
Market conditions have changed materially since the CPUC initially adopted the transition revenue account, SCE said. On September 7, 2000, the CPUC issued an order expanding its existing investigation into the wholesale electric market and retail rates to include issues identified in joint resolution adopted by the California Legislature Aug. 30, 2000. The joint resolution requires the CPUC to review the impact of the current electricity crisis on consumers and California investor-owned utilities.
SCE said it believes it has "solid grounds for requesting authority to fully recover its transition revenue account undercollections and that it is entitled to be paid for these procurement costs incurred on behalf of its customers." Based on historical experience, SCE said it believes the CPUC will cooperate with this objective, as it supported cost recovery during the oil price shocks of the 1970s.