SoCal defaults on payment to California Power Exchange

Ann de Rouffignac
OGJ Online

Southern California Edison Co. Thursday defaulted on a $215 million payment to the California Power Exchange. The utility had received a 2-day extension from the Federal Energy Regulatory Commission to make the payment.

The default by Southern California Edison (SCE) prompted credit rating agency Standard & Poor�s to downgrade the California PX short-term credit rating to �C� from �A-3�. The rating remains on CreditWatch with negative implications. S&P says the rating reflects the exchange�s reduced ability to make timely payments to the California Independent System Operator which has also been downgraded.

�The default of the $215 million and ongoing lack of a solution to the utilities financial crisis translates into a heightened probability of insolvency and is reflected in the utilities ratings downgrade,� according to an S&P statement.

The PX is under severe financial stress because of a Dec. 15 Federal Energy Regulatory Commission (FERC) order eliminating the requirement that utilities must sell or procure their power from the PX. That seriously �erodes� the financial viability of the PX, S&P says.

The PX immediately took possession of certain forward contracts used as collateral for power purchases made by Southern California Edison.

�We have collateralized their forward contracts. Those are expected to pay the $215 million,� says Jesus Arredondo, spokesman for the PX.

But some sources say sale of the contracts might not bring as much as hoped. The possibility of a SCE bankruptcy means the contracts could be worth only �pennies on the dollar,� explained one source.

The utility company moved a step closer to bankruptcy with a decision Thursday to cut the quarterly dividend on preferred stock payable Feb. 28. The action came on the heels of the defaulted payment to the PX and missed payments on other debt.