A federal judge approved a settlement Friday designed to keep Southern
California Edison out of bankruptcy, calling the agreement fair and "not
a bailout by any means."
The settlement begins to write an end to the Edison saga--a tale of deregulation
gone bad and power debts left unpaid by the state's second largest
The same problems put Pacific Gas & Electric Co. in Bankruptcy Court,
where it awaits an evaluation of a complex refinancing plan that would
repay its creditors while splitting the San Francisco company in two.
And although the state managed to avoid the plague of blackouts expected
during the summer, it remains saddled with more than $10 billion in electricity
debts amassed while buying power for the customers of Edison, PG&E
and San Diego Gas & Electric since January. A running dispute between
state regulators and Gov. Gray Davis has left in doubt a planned $12.5-billion
bond sale to repay the debts.
The outlook for Southern California Edison was looking dim after the state
Legislature adjourned Sept. 15 without passing a bill to help the Rosemead-based
utility out of its financial mess.
But on Tuesday, Edison and the state Public Utilities Commission unveiled
a rescue plan that would allow the firm to repay $3.3 billion in electricity
debts using shareholder and ratepayer funds.
The deal, structured as a settlement of a federal lawsuit filed by Edison
against the utilities commission, would keep customer rates at their current
levels for at least two years. Edison would refrain from paying dividends
to its shareholders for the same period.
Consumer groups have attacked the settlement as a backdoor bailout reached
in secret that puts an unfair burden on the utility's customers and
keeps rates artificially high. Even some key lawmakers criticized the
deal as more generous than what the Legislature had considered.
It took U.S. District Judge Ronald S.W. Lew only a few minutes Friday morning
to begin wrapping up Edison's 18-month descent into insolvency and
political and regulatory turmoil.
Lew took the bench shortly after 9 a.m., said he had fully considered all
the written arguments, and had reached a final decision. He said he would
entertain no further legal arguments.
He said the proposed settlement is "fair, adequate and reasonable
to the parties, the shareholders and to the public and is not a bailout
by any means."
When the judge concluded, Michael J. Strumwasser, attorney for the Utility
Reform Network, asked to be heard so he could request a stay, pending
an appeal to the U.S. 9th Circuit Court of Appeals. Lew refused.
"The case is closed," the judge said.
Outside the courtroom, Strumwasser said the San Francisco-based consumer
group would file its appeal as soon as Lew formally signs off on his ruling.
"Our papers are already drafted," Strumwasser said.
"The PUC acted in flagrant disregard of state law," he said.
"The PUC can't make policy in a secret negotiation."
He also charged that under terms of the deal, Edison's ratepayers could
be liable for $3.3 billion in past debts, not the $2.1 billion claimed
by the commission.
The disputed $1.2 billion represents dividends that Edison has agreed won't
be issued but will be used to pay debts. The consumer group contends that
the dividends are being used to reduce a larger debt balance to $3.3 billion
rather than to cut the $3.3-billion total to $2.1 billion.
"Not only is it illegal, but it's also a bad deal," Strumwasser
said. Another lawyer said the consumer group is considering challenging
the commission's actions in state court.
But Stephen Pickett, an Edison vice president and its general counsel,
said the settlement is a fair compromise. He expressed confidence that
the Court of Appeals would uphold Lew's ruling.
Gary Cohen, the commission's general counsel, called the decision an
important first step in establishing a more normal, traditional relationship
between Edison and the commission and in getting the state out of the
energy procuring business.
"We want Southern California Edison to be credit-worthy," Cohen
said. "This, frankly, is the only way to do it."
Cohen said he expects electricity rates to drop after 2003 when Edison
is expected to finish paying its creditors.
Asked about the possibility of Edison being forced by creditors into involuntary
bankruptcy, Cohen said that with the federal settlement in place, any
such move would be an uphill battle