California PUC approves Southern California Edison bailout provisions

By the OGJ Online Staff

HOUSTON, June 14 -- The California Public Utilities Commission Thursday approved elements of a deal to rescue Southern California Edison Co. from potential bankruptcy, but delayed action on one of the most controversial provisions until later in the month.

The PUC postponed until 2003 the utility's general rate case and extended its performance-based procedures for setting rates until they are superseded by decision on the general rate case. Regulators also modified a revenue sharing agreement with respect to Southern California Edison's interest in the San Onofre nuclear plant.

But the PUC delayed voting on findings of an investigation into the relationship between the utility and its parent Edison International. Southern California Edison wants certain findings from the case included in the so-called memorandum of understanding (MOU) the company signed with Gov. Gray Davis.

The PUC opened the investigation into the relationship between Southern California Edison and Edison, Rosemead, and Pacific Gas & Electric Co., San Francisco, and San Diego Gas & Electric Co., San Diego, and their respective holding companies, after a report which found the parent companies held billions of dollars while the utilities were struggling financially.

Each of the holding companies has rejected the PUC's claims it has jurisdiction over them. The PUC has denied their arguments in a draft order, but commissioners haven't voted on it.

Southern California Edison Co. and Gov. Gray Davis signed the MOU Apr. 9 under which the state will effectively bail out the utility by, among other things, buying its transmission system for $2.76 billion. The utility would also sell bonds to pay off $3.5 billion in wholesale electricity debt accumulated because the company could not pass on the full cost of power under a retail rate freeze.

In addition to action by the PUC, the MOU calls for the state legislature to adopt certain provisions by early August. But lawmakers have been dragging their heels and Davis has had difficulty finding a sponsor for the measure.

During a Wednesday press conference, the governor said he was meeting with state senate and house leaders to discuss the proposed legislation. "Hopefully, we can make progress on some form of an MOU with Edison, which will then be a template for resolving PG&E's dispute with its creditors," he said.

MOU legislation needed
After a meeting with 11 legislators, Davis said at least half of them seemed to understand the importance of ratifying the MOU or something close to it, so the state can get back to doing things other than "basically running a utility company, which has been the case for at least 7 or 8 months."

The governor said he had no objections to an alternative plan, "if it can muster a consensus" and is acceptable to Edison and "to me. In the meantime, we need to show movement. To do that we have to have a hearing on the Edison MOU and move that bill."

Davis said the patience of the creditors is wearing "very thin," and Edison is taking steps similar to ones taken by PG&E to fence off assets of its parent company.

Moreover, Davis and his aide Richard Katz said a deal cut with small generators known as "qualifying facilities" or QFs turns on obtaining legislative approval of the Edison deal. Southern California Edison and Pacific Gas & Electric buy electricity under contract from the QFs. After the utilities halted payment to the QFs, many stopped producing power.

Subsequently, the PUC ordered the utilities to begin paying the QFs for future deliveries. Wednesday the PUC ordered Southern California Edison Co. to make back payments of 15% of what it owes the QFs, if the companies can prove financial hardship. As part of the deal, Katz said the parties agreed to a gas price of $5.37/MMbtu, but the price deal is not effective until the legislature passes the MOU.