SoCalEdison Hit with Securities Fraud Suit
Rosemead, CA-based Edison International and its Southern
California Edison utility were hit with a $2.4 billion securities
fraud class action federal lawsuit last Monday, alleging the
companies' violated parts of the federal securities law by booking
as revenue in the second and third quarters more than $2.3 billion
in summer wholesale power costs that have yet to be collected.
Edison said it was still reviewing the suit, and declined to
comment at this time. The other major California power utility,
Pacific Gas and Electric, San Francisco, has not been targeted by a
similar lawsuit, although it, like Edison, did not take any
write-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 experience
litigating against Edison." Last year, Ames said he won a $6.35
million jury verdict against the Edison utility on behalf of an
energy efficiency company, Transphase Systems, which alleged that
the multi-billion-dollar utility had "maliciously driven" them out
In the latest case, Ames on behalf of one former Edison
shareholder "representing a class" alleged that the utility and its
parent company essentially is "booking phantom revenue" in its
handling of the under-collections and that "grossly deviates" from
Generally Accepted Accounting Practices (GAAP) and applicable
Financial 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 bank
account," said Ames, who added that based on last Friday's
pre-hearing conference at the California Public Utilities
Commission on the issue there is no indication the state regulators
are going to act soon to allow Edison to recover the charges.
He argued the "the uncertainty is borne by Edison management" to
report the company's financial statements in accordance with GAAP
and financial accounting standards. Even in Edison International's
recent 8-K filing with the Securities Exchange Commission, the
company stated that the standard involved in this issue is whether
it is "probable" that it will recover the entire $2.358 billion in
order to record it as revenue, Ames said.
Ames said he is not emphasizing the $2.4 billion value of his
lawsuit because it is based on some complex financial calculations,
attempting to determine how badly Edison's stock price would be
hurt by an accounting for the current under-collections in full.
"It was based on looking at the average trading volume and an
assumption that the dollar value would go down by about $8/share."
Richard Nemec, Los Angeles
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