Indicative of industry-wide trends in the same direction, Rosemead, CA-based Edison International’s senior executives told financial analysts Tuesday that the energy holding company is staking its future on restoring its traditional utility operations to full financial health.

For 2003, it sees a further move back to a more traditional rate-based regulatory structure for Southern California Edison Co., and predicts an increase of about $230 million in its rate base for the year, according to the parent company’s CFO.

Edison currently has about $1 billion of equity invested in its once-prosperous merchant energy businesses, and it has no intention of putting any additional money in those companies under the Edison Mission Energy family “until and unless it is clear it is in the interest of our shareholders to do so,” said Edison International CEO John Bryson, during an analysts conference Tuesday.

Bryson said that Edison “in most respects made substantial progress” this year in its strategic goal of restoring its financial strength and flexibility, but what he called “a sweeping challenge” in the wholesale power market has raised “critical credit questions.” He said Edison was “doing what it needs to do” to position Edison Mission Energy and its affiliates in a tough environment, which he characterized as “high debt levels and debt markets.” Bryson also noted that the Edison merchant operations have the “strengths” of not being heavily committed to future leveraged power projects nor a heavy commitment to speculative energy trading operations.

“We don’t have significant forward capital commitments, and we have never undertaken significant trading,” Bryson said. “What we do in trading is simply hedging the risk of merchant plants. We’re moving to a position of more uncontracted power plant output (from 76% under contract this year to something like 50% in 2003).”

On the other hand, the Edison utility has still not regained an investment-grade credit status and its settlement with state regulators is under fire in a federal legal appeal that was partially kicked over to the California Supreme Court for its legality under state statutes. Southern California Edison posted $1.5 billion in cash as of Oct. 31, and will end this year with about $1 billion in cash, according to Ted Craver, parent company CFO. At the end of next year, the utility expects to have $400 million in cash.

“The principal contributor to an increase in year-over-year results is so-called ‘rate-base earnings’,” Craver said. “With all of the changes taking place in the regulatory approach [toward the utility], earnings are increasingly looking like a more traditional cost-of-service, rate-base model. We see an increase of about $230 million in rate base in 2003 over 2002, most occurring on the distribution side of the business.”

Edison’s estimate for portions of rate base among the three principal utility segments are: $1.069 billion for transmission; $7.077 billion for distribution; and $1.167 billion on generation. Based on this, Edison estimates more than $500 million of earnings or $1.60/share from the utility next year.

On the merchant side, Bryson in response to analysts questions reiterated that he expects to Edison Mission Energy companies to “stand on their own,” and in the overall picture, he and the holding company are focused on “creating more value for shareholders.

“We, of course, have in mind that it wasn’t so very long ago when the picture was decidedly different, and a California utility was regarded as the weaker entity and the independent power company was regarded as the potential strength.”

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