This week is crunch time for the California legislature and the fate of Southern California Edison Co. as it sits on the edge of being dragged into bankruptcy. Facing a summer recess beginning this Friday, state lawmakers were exploring alternatives to the April 9 deal the governor and Edison struck that involves the sale of the utility’s transmission assets to the state.

A new Assembly Bill (82XX) was thrust forward late last Friday, using the governor’s deal as a framework, but differing in at least four key ways: (1) buying the transmission, but “at less than market value; (2) establishing an “electricity supplier claims resolution trust” to reduce payments to generators found to be overcharging; (3) establishing a ratepayer refund account to allow consumers to benefit as power costs fall; and (4) restoring direct access retail choice for most customers.

The latest proposal, its sponsors claim, will not require rate increases, and the bill will be considered this week by an Assembly committee charged with looking at energy costs and availability in the still-ongoing second emergency special session.

Reports out of Sacramento last Friday were inconclusive, with state legislators indicating there was no majority support for any alternative, but Edison officials expressed optimism that a wide-ranging agreement would be fashioned by the elected officials. Off-the-record, state legislative insiders, however, were speculating that the last-minute flurry of activity was just a means for a number of majority lawmakers to cover their political backsides when Edison’s creditors inevitably take the utility into Chapter 11 bankruptcy proceedings, a course Pacific Gas and Electric Co. chose voluntarily in April just before Edison struck its deal with the governor.

Increasingly more legislators in the majority Democratic side of the legislature are seeing bankruptcy as a better alternative than an agreement that voters will view as a “bailout” from the taxpayers to a private-sector company. Assembly Speaker Robert Hertzberg, however, said Friday in news media accounts that the legislature “must act,” and as such, and he is the sponsor for the proposed new alternative plan, first scheduling hearings over the past weekend, and then rescheduling for today.

“Our proposal protects those who deregulation has hurt the most–consumers, and holds accountable those who have taken advantage of us, and it promises consumers that they will see rates go down,” said Hertzberg, referring to the newly conceived AB 82XX.

At least three issues outside the proposed deal (“MOU,” memorandum of understanding) between Davis and Edison, have gotten in the way of a legislative solution being forged:

The federal settlement talks with the prospect of some refund agreement being reached.

The $43 billion in long-term power contracts the state signed which lock in utility customers for years.

The desire among some lawmakers to retain customer choice and direct access contracts at least for the largest business customers.

An alternative approach being talked about in private discussion late last week was for the state to forgot about buying Edison’s transmission lines and also leave it to the utility to resolve the $1 billion in past-due bills it owes generators. The state’s financial fix would focus on the $2.5 billion Edison owes banks and other creditors, helping make them whole on these debts.

Another variation is to continue to do as the state regulators have done in spreading recent electric rate increases, shield the residential and small businesses from paying the bulk of the costs. Instead medium and large businesses would carry most of the load in a scenario that envisions the generators taking substantial discounts on the amounts they are owed in return for the assurance of getting a portion of it from increased rates the business customers would pay

Edison officials indicated last week that they will continue to resist bankruptcy if state and federal generated relief falls short, but they will be in a “very difficult” predicament unless some solution comes out of the state legislature by mid-August.

“Quite clearly the CPUC has missed a number of important dates called for in the MOU (memorandum of understanding with the governor),” said Ted Craver, Edison International CFO. “Without significant action by both the regulators and lawmakers by Aug. 15, it is a matter of significant concern from our standpoint,” he said, noting the utility still doesn’t view bankruptcy as an alternative it would voluntarily take.

Craver said the FERC settlement talks have not directly impacted the state legislative discussions, but they are obviously related because refunds could alter the degree of financial distress the legislative solutions would have to address. “A refund settlement, however, was never specifically contemplated in the MOU with the governor,” he said.

The Edison utility’s parent, Edison International, file (an 8K) with the federal Securities and Exchange Commission July 11, detailing the refinancing it closed July 2 to pay off $1.2 billion in the holding company’s debt. Included in those details is disclosure that a combination of $59 million in dividends from merchant power plant developer Edison Mission Energy and sale of various nonutility assets totaling $210 million were added to the parent company’s refinancing, according to Craver.

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