Hoping to reverse the momentum of adverse court and regulatoryactions that have pushed it to the brink of bankruptcy, SouthernCalifornia Edison Monday won a U.S. District Court lawsuit againststate regulators, upholding the utility’s right to recoverreasonable costs for purchasing power.

While the judge drew short of remanding the rate question tostate regulators, he essentially “handed the ball back” to thestate regulatory commission for prudency determination, accordingto Stephen Pickett, Edison’s vice president and general counsel.

He said he hopes the utility can get another motion from thesame federal district court, perhaps by the end of this week,agreeing that Edison was directed by state regulators to buy fromthe California Power Exchange, (Cal-PX), the state-charterednonprofit wholesale spot electricity market.

Edison is basing its case on the U.S. Supreme Court-tested”filed rate doctrine” that essentially says if purchases covered inalready established rates are found prudent by state regulators,those regulators must approve passing on the costs to retailcustomers. Since Cal-PX and Independent System Operator (Cal-ISO)tariffs are filed with the Federal Energy Regulatory Commission,the filed rate doctrine applies, said Pickett, noting that thefederal judge Monday specifically acknowledged this.

“The fact that these happen to be market-based rates does notchange the filed-rate doctrine,” Pickett said. “That is a very,very powerful ruling for us. He left the path open for us todemonstrate that the CPUC did direct us to go to the Cal-PX and ISOand gave us no choice. And the CPUC has already found in a numberof their own rulings these costs to be reasonable.

“In the bulk of the purchases the CPUC has already told us whereto go, where to buy and said we could not go anywhere else, alongwith saying those purchases would be deemed reasonable for stateratemaking purposes. Once the federal judge sees that, we have wonthe case. That is the next step (on which there may be a decisionlate this week).” Ultimately, the issue will have to be resolved ina combination of court and state regulatory rulings, Pickett said.

“This ruling is an important step toward rebuilding thefinancial stability of California’s electric power system,” Edisonsaid in a prepared statement following the ruling by U.S. DistrictJudge Ronald W. W. Lew.

“This is potentially huge,” said an official with one ofCalifornia’s state energy organizations involved in electricityrestructuring. “It signals an area that hasn’t really beenaddressed by the governor.”

Edison’s sister investor-owned utility covering the northernhalf of the state, Pacific Gas & Electric Co., hailed thefederal judge’s decision, noting that it has filed a similar suitin the U.S. District Court in San Francisco, making the samearguments against the CPUC. Its case is scheduled to be heard Jan.30.

“We believe the CPUC should work together with California’sutility companies as soon as possible on methods to stabilizecustomer rates to avoid rate shock from wholesale power costs.”

In Monday’s finding, the court concluded that a trial is neededon the question of the prudency of Edison’s multi-billion-dollarcharges, and Edison expressed confidence it would prevail becausethe CPUC repeatedly has held that purchases are “reasonable” whenmade through Cal-PX.

Edison had another federal lawsuit — against the FederalEnergy Regulatory Commission — in Washington, D.C.’s CircuitCourt of Appeals, but it was dismissed Friday without ruling on themerits of the utility’s legal arguments that FERC is shirking itsresponsibilities to impose cost-based rates on California’s”dysfunctional wholesale power market.” The court noted that itexpected FERC, itself, to rule on Edison’s request for a rehearingof its Dec. 15 decision in a timely manner.

Also last Friday, Edison made its second announcement ofcutbacks in its utility operations in less than a month, callingfor a $465 million operating cutback affecting “virtually everyoperation” in the company, including a $100 million reduction in2001 spending for electric system operations, maintenance and newinvestment. The reductions will cut both union and nonunion jobstotaling 1,450 full-, part-time, temporary, contract andsupplemental/contingency jobs, including the 400 contract positionsannounced in December.

A result of this cutback means that “electric system componentswill be replaced only after they fail or are judged likely to failsoon,” Edison’s prepared statement said.

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