Rosemead, CA-based Edison International and its SouthernCalifornia Edison utility were hit with a $2.4 billion securitiesfraud class action federal lawsuit last Monday, alleging thecompanies’ violated parts of the federal securities law by bookingas revenue in the second and third quarters more than $2.3 billionin summer wholesale power costs that have yet to be collected.

Edison said it was still reviewing the suit, and declined tocomment at this time. The other major California power utility,Pacific Gas and Electric, San Francisco, has not been targeted by asimilar lawsuit, although it, like Edison, did not take anywrite-offs for the pending under-collections.

The legal action was filed by a Huntington Beach, CA, lawyer,Douglas A. Ames, who maintains that he has “extensive experiencelitigating against Edison.” Last year, Ames said he won a $6.35million jury verdict against the Edison utility on behalf of anenergy efficiency company, Transphase Systems, which alleged thatthe multi-billion-dollar utility had “maliciously driven” them outof business.

In the latest case, Ames on behalf of one former Edisonshareholder “representing a class” alleged that the utility and itsparent company essentially is “booking phantom revenue” in itshandling of the under-collections and that “grossly deviates” fromGenerally Accepted Accounting Practices (GAAP) and applicableFinancial Accounting Standards.

“It is money Edison hasn’t billed — that isn’t even billable— yet it is accounting for this money like it was in its bankaccount,” said Ames, who added that based on last Friday’spre-hearing conference at the California Public UtilitiesCommission on the issue there is no indication the state regulatorsare going to act soon to allow Edison to recover the charges.

He argued the “the uncertainty is borne by Edison management” toreport the company’s financial statements in accordance with GAAPand financial accounting standards. Even in Edison International’srecent 8-K filing with the Securities Exchange Commission, thecompany stated that the standard involved in this issue is whetherit is “probable” that it will recover the entire $2.358 billion inorder to record it as revenue, Ames said.

Ames said he is not emphasizing the $2.4 billion value of hislawsuit because it is based on some complex financial calculations,attempting to determine how badly Edison’s stock price would behurt by an accounting for the current under-collections in full.

“It was based on looking at the average trading volume and anassumption that the dollar value would go down by about $8/share.”

Richard Nemec, Los Angeles

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