Southern California Edison could write off $2.5 billion

By Ann de Rouffignac
OGJ Online

HOUSTON, Apr. 10--Southern California Edison Co. alerted financial analysts of a possible $2.5 billion aftertax write-off to fourth quarter 2000 earnings, if the California Public Utilities Commission doesn't modify a Mar. 27 order.

"We need to know by Apr. 17 the probability to recover the regulatory asset of the TRA (transition revenue account)," said Ted Craver, chief financial officer of Edison International, in a conference call Tuesday. Edison International is the parent of Southern California Edison (SCE).

The TRA is a regulatory asset account in which SCE records the difference between revenues received from customers and the costs of power. Another account called the transition cost balancing account or TCBA tracks the recovery of generation-related transition costs, including stranded investments.

Under the Mar. 27 PUC order, Southern California Edison must file reports making accounting changes and restating its books back to Jan. 1, 1998. The effect of the order would be to prolong the current electric rate freeze and make it appear SCE has not incurred operating losses on its wholesale power costs, the company said.

"SCE believes that this decision by the PUC is a fundamental departure from established regulatory accounting and ratemaking procedures and is unlawful and unconstitutional. SCE believes the PUC's intent was to deny SCE lawful recovery of its costs," according to a filing at the US Securities and Exchange Commission Tuesday.

The company said the PUC must modify this decision in a manner consistent with Monday's announced agreement to sell its transmission assets to the state and issue bonds to pay off its past undercollections for power purchases. The preliminary agreement with the state is structured so all of the undercollections, totaling $3.5 billion of power purchases, is recovered.

Apr. 17 date is the last possible date to file quarterly and annual income statements with the SEC and still have them considered "timely." The company said it expects to file the statements then.

"If we don't get this, if the regulatory assets cannot remain on the books, then we will have to take the write-off," said Craver. "We have limited amount of days to decide this."

In the 1999 fourth quarter, SCE reported revenue of $1.82 billion and parent Edison International reported $2.5 billion in revenue. Income for Edison, including the utility, before fixed charges and taxes was $367.4 million. Edison's net income was $96.1 million. During Tuesday's conference call, Edison executives said they could not quantify the impact of the potential write-off on earnings.

If the PUC does not modify its decision to be consistent with the rescue plan outlined Monday by California Gov. Gray Davis, SCE said it will "challenge the decision through all appropriate avenues." Although Craver conceded there is a real possibility of a write-off, he suggested investors could also presume the assets would probably be restored and the books would then be "written up."

Craver emphasized Davis and his advisors negotiated Monday's plan.

"The governor endorses it and strongly supports it," Craver said. He added Loretta Lynch, PUC president, was present at some of the negotiations, even though the PUC, as an independent regulatory agency, cannot be a party to the plan.

Contact [email protected]