Along with an additional $221 million in costs for mostly natural gas-fired purchased power for its utility, Rosemead, CA-based Edison International is facing a mounting set of problems, which were reflected in third quarter results. The company's pioneering independent power unit may have to file for Chapter 11 bankruptcy and be cut adrift.
This was part of the dire-sounding story CEO Ted Craver had to tell financial analysts during 3Q2012 conference call in which the holding company reported earnings significantly down for the quarter. The numbers are: $220 million (58 cents/share) for 3Q2012, compared with $441 million (or $1.31/share) for the same period in 2011.
Craver said the holding company's long-troubled independent generation business, Edison Mission Group, was likely to have to file for Chapter 11 bankruptcy; the Southern California Edison Co.'s (SCE) San Onofre Nuclear Generating Station (Songs), which has been idle since January, may not ever come back to full operating capacity; and a critical SCE general rate case is still hung up at the California Public Utilities Commission.
In addition in October, the CPUC launched an investigation regarding the outages to both units at Songs, specifically looking at how much of the mounting more than $300 million in costs will be recoverable in utility rates. At the same time Craver reported that the efforts to restructure EMG and salvage the parent company's $1.24 billion investment have been unsuccessful.
In a 10Q filing to the Securities and Exchange Commission (SEC), Edison said EMG has about $627 million in corporate cash and cash equivalents while carrying $3.7 billion of unsecured debt, $500 million of which matures in June, and the power unit can't pay the $97 million in interest due on those bonds Nov. 15.
Acknowledging that EMG has been challenged for a number of years, Craver said a default in the bond interest payments "will likely result in a Chapter 11 filing under the federal bankruptcy code," which he characterized as beginning the process for the business being severed from Edison International, which will cease having it as part of its consolidated financial results at the time of a bankruptcy filing.
EMG continues carry on confidential talks with the bondholders and their advisers for the $500 million offering that matures in June, and Craver said he could not give any details on where those talks stand because of the nondisclosure agreement among the parties.
Regarding Songs, Craver said the bill for having both Units 2 and 3 out of service most of this year has now passed $300 million, with $221 million of that going for alternative power supplies, mostly natural gas-fired supplies.
After escaping from the brink of Chapter 11 during the western energy market crisis more than a decade ago, EMG has been teetering again in recent years (see Daily GPI, March 2). Any [eventual] loss for the holding company would be recognized "in an amount equal to the excess of the book value of Edison International's investment," which was $1.24 billion as of Sept. 30, Edison said in the SEC 10Q.
The mounting charges for the Songs outage Edison hopes to recover through a combination of insurance, billing the maker of the faulty steam generation units, Japan's Mitsubishi Heavy Industries, and utility rates.
As he has indicated before, Craver said that there is no certainly that Songs will be able to be restored to its full capacity of 2,200 MW. SCE has submitted a plan to the Nuclear Regulatory Commission to operate Unit 2 for an interim five-month period at partial capacity, but it is unclear at this point whether the other Songs unit will ever be restarted.
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