Edison Positive About Committee Passing Rescue Bill

Although no one is willing to bet on its becoming law, the legislative proposal to rescue Southern California Edison Co. Friday was rested in place at a state Assembly appropriations committee, which will resume making technical amendments to it Tuesday after Labor Day. A vote by the full lower house of the legislature could come late Tuesday or Wednesday.

Edison officials Friday put a mostly positive spin on the latest proposed approach to restoring its financial viability, but they drew short of saying the current version would become the legislative solution that they and the governor are anxiously awaiting.

"We are encouraged by the forward movement that took place in the state Assembly...and commend Gov. Davis and the Assembly leadership for their intense effort to reach a workable solution," said Stephen Frank, the Edison utility CEO. "Although we still have a number of concerns and have yet to digest the full impact of many amendments, we continue to hope SB 78XX will be a positive framework in which to return Edison to, and get the state out of, the power purchasing business."

Among the provisions of the proposed bill being amended Friday is a requirement that $2.9 billion in rate stream-securitized bonds that Edison would be authorized to sell could only be applied to debts it owes lenders and the qualifying facility (QF) power plant operators. Merchant generators and marketers would be specifically precluded from receiving any of the funds.

This so-called "hierarchy of creditors," caused one free-market economist, Benjamin Zycher, with the San Francisco-based Pacific Research Institute, to predict the state legislation will lead to the further politicization of the state's energy markets and to some of the left-out creditors, taking Edison into involuntary bankruptcy.

The further impact of this would be to make even more powerful the less-than-a-month-old California Consumer Power and Conservation Financing Authority (public power authority), Zycher said. "The very purpose of the power authority, like any bureaucracy, is to transfer wealth among interest groups," said the outspoken economist. "So the impact of this bill is to expand the scope and longevity of the public power authority, and it in turn will be subjected to political pressures to favor some geographic regions over others; some consumers at the expense of others. So whatever comes out of the legislature, if anything passes, is likely to politicize the market further, meaning it will yield an allocation of resources that is driven less by market forces and more by political forces."

The legislation, which could be passed by the entire Assembly early this week, eventually would face a thumbs up or down vote by the state senate, or a third option of a No-vote with a remand to a conference committee with the Assembly. Key provisions as of Friday include:

  • Exemption for most small customers from paying for the rescue with customers using more than 20 kwh and larger bearing the costs;
  • Elimination of the so-called "conservation easements" in which the utility would be required to give the state thousands of acres of watershed along its hydroelectric system for environmental preservation (Amendments to re-insert these provisions in the bill were still being considered last Friday);
  • A five-year option for the state to buy Edison's transmission system at two times its book value or about $2.4 billion;
  • Some provisions for direct access, although several different proposals were being debated last week;
  • A five-year freezing of Edison's current authorized utility profit level of 11.6%; and
  • A corresponding ban on the utility or parent paying dividends to common shareholders unless a long list of criteria are met.

The head of the merchant generators' lobbying group in Sacramento agreed with Edison last week that it is hard to determine what will happen to the legislative proposals, but he said that this is still "early" in the end-of-session rush that will gather steam after Labor Day.

"I think there is a chance of getting a bill out of the legislature, but what it looks like when it gets out is really an open question," said Jan Smutny-Jones, executive director for the California Independent Energy Producers (IEP), who has been following and lobbying energy legislation in Sacramento for many years.

"I have never seen a bill moved in a manner that is as fluid as this. There are amendments going in and coming out literally in real time. If you are closely watching the process go on, you are really not sure what exactly is in [or out of] the legislation. I think there is a good chance something will get out of the legislature, but what it looks like and does is another story. I don't know how in fact this thing will mutate because I think we are still in the early acts of the play here."

Following an all-night session, a California legislative committee passed on a possible Edison rescue bill to the appropriations committee last Thursday, prompting Gov. Davis to express hopes of a solution.

"I am thankful for all the Assembly members who voted for this important legislation to protect ratepayers and get the state out of the energy business," the governor said in a prepared statement. "I will continue to fight for passage of this legislation. It is critical that the full Assembly continue to move the ball forward to keep Edison solvent and to protect ratepayers."

A key for the utility is whether all of its $3.9 billion in debt will be paid off via the legislation. The bill (AB 78XX) in its present form offers about $2.9 billion, with the utility and merchant generators left to absorb the remaining $1 billion, which is Edison's approximate unpaid bills to the mostly out-of-state power providers.

Edison International CFO Ted Craver said in a conference call with creditors Friday that Tuesday the utility will be making about $14.5 million in interest payments on first-mortgage bonds; it will be foregoing payment of just under $1 million on some other notes, and it will be asking banks to extend forbearance agreements which run out Sept. 15.

Regardless of whether Edison gets a legislative solution or is forced into bankruptcy to joint Pacific Gas and Electric Co., which seems to be faring quite well in Chapter 11 proceedings, the economist Zycher thinks a continuing move toward a restructured energy world is "inevitable."

"Going back to a regulated system is nuts," Zycher said. "Look what it gave us before--prices 50 percent higher than the rest of the country. And second, technologic and economic forces deregulating the industry are not going to go away. The fact that California passed a stupid law in 1996 is not an argument for either going backwards or resisting what is inevitable and an efficient change."

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