SoCal defaults on debt to California PX, others

In what could become a prelude to a Chapter 11 bankruptcy filing, Southern California Edison Co. said Tuesday said it is defaulting on $596 million owed the California Power Exchange (PX) and other debt holders, entitling them to exercise remedies under financial agreements with the utility and its parent Edison International.

The company reported it temporarily suspended payment of $230 million of principal and interest due Jan. 16 on a 5 7/8% notes, $215 million due to the PX on Jan. 16, $151 million due to "qualifying facilities" through Jan. 16, and certain other obligations.

Qualifying facilities are nonutility power producers meeting certain standards set by the Federal Energy Regulatory Commission.

In an 8-K filed with the US Securities and Exchange Commission, the company outlined cash conservation measures intended to "ensure it can maintain customer service," while a legislative and regulatory solution, which involves both state and federal authorities, is finalized.

SCE said it is "somewhat encouraged" by directional progress made during the ongoing power negotiations among state and federal officials, but with no definitive agreements, "time has simply run out." Nevertheless, the company said it would continue to cooperate fully in the state and federal discussions until such time as a successful conclusion is reached.

Governmental officials, power generators, and utility companies have been involved in discussions of solutions to the current energy crisis that could include a period of forbearance on payments to the PX for power previously sold. If such a forbearance period is not agreed to and implemented, SCE said it cannot predict what actions the PX or the power generators may take.

As of Jan. 15, SCE reported cash reserves totaled $1.196 billion and outstanding undercollections from ratepayers totaling $4.5 billion as of Dec. 31 and growing. The company is operating under a rate freeze that doesn't permit it to fully recover the cost of purchased power. SCE projects it will run out of cash Feb. 2.

Foreclosed from borrowing
SCE's total expenses accrued for energy delivered by, and not yet paid for on Jan.15, including payments owed the PX and qualifying facilities, are $697 million to qualifying facilities; $359 million to the PX forward market; $461 million to the PX and California Independent System Operator (ISO) real-time market; $4 million for interutility transactions; and $24 million to bilateral contracts, for a total accrued energy payable of $1.543 billion as of Jan.15, 2001.

The utility and its parent Edison have no unused borrowing capacity under their existing credit facilities and have been unable to arrange additional credit, SCE said. In addition, they can no longer issue commercial paper or otherwise access the capital markets "on reasonable terms."

Failure to make the payment to the PX constitutes a default under the PX's tariffs, entitling the PX to foreclose on collateral, SCE said. Today's default could also trigger a default on all outstanding series of SCE's senior unsecured notes and subordinated debentures.

The PX and ISO have filed amendments with FERC to revise the credit requirements in their tariffs so that collateral is not required as long as SCE maintains at least an investment grade credit rating. But if SCE is downgraded further by Moody's and Standard & Poor's to below investment grade, SCE would be required under the revised tariffs to provide collateral.

SCE said it does not expect to be able to satisfy the collateral requirements of the PX or ISO, if it is downgraded below investment grade. Failure to post collateral may result in SCE being precluded from conducting transactions with the PX and ISO, it said.

Edison also reported the corporation amended its bylaws of incorporation to protect Edison Mission Energy (EME), a wholly-owned indirect unregulated subsidiary from the credit downgrade with so- called "ring fencing'' provisions.