California federal court ruling pushes SoCal closer to bankruptcy

By the OGJ Online Staff

HOUSTON, Feb. 12�Southern California Edison Co. was dealt a blow Monday in federal court when the judge denied its request for an immediate rate hike.

The utility sued the California Public Utilities Commission (PUC) in US District Court in Los Angeles to overturn PUC rulings that prevented the company from recovering its wholesale power costs through higher rates. The wholesale price of electricity has increased dramatically and retail rates are frozen. Southern California Edison, a unit of Edison International, and Pacific Gas & Electric Co. are caught in a squeeze that has pushed them to the brink of bankruptcy as they build up hundreds of millions of dollars in unpaid power bills.

The judge did move up to March 5 from March 19 an evidentiary hearing in preparation for the trial. The court also invited attorneys from both sides to present motions for summary judgment at the hearing.

He ruled against the request for a immediate rate hike based on a state's rights argument.

Analysts say the case could have dire consequences for the utility. It increases the chances Southern California Edison (SCE) could be forced into bankruptcy by creditors counting on the court to hike rates and help the utility meet its debt obligations. The utility said it will hold a conference call with some of its creditors Feb. 13 to discuss the ruling.

The original complaint was filed Nov. 13 after the PUC denied a SCE request for higher rates. SCE alleged the PUC violated federal law when it required the company to procure wholesale power for its customers from the state�s newly deregulated wholesale market and sell it without markup.

Late Friday three generators formed a creditor�s committee to pursue �options� that might force the utility into bankruptcy. Dynegy Inc., Reliant Energy Inc., and Mirant Corp. (formerly Southern Energy) are seeking payment for power already delivered to the utility.

The newly formed creditor�s committee has not decided to pull the plug on the utilities yet based on the ruling, says Richard Wheatley, spokesman for Reliant Energy.

�We�re not doing anything yet,� he says. �Today�s action by the federal court has no bearing on whether we are pushed over the brink. No decisions have been made by the creditors' committee based on that ruling.�

Meanwhile, generators are racking up �receivables� from power produced and ultimately sold to the utilities. The utilities are not paying their bills and are in default on many of their long-term debt obligations, in addition to their power bills. The generators are also under court order until Feb. 16 to continue selling power whether or not they get paid.

Reliant Energy Wholesale Group Pres. Joe Bob Perkins said his company is preparing an appeal to the US Ninth Circuit Court of Appeals, if necessary after the Feb. 16 ruling.