Ruling gives state time to work deal with utilities

The Associated Press
Tuesday February 13, 2001

LOS ANGELES — State officials Monday received more time to negotiate a bailout with the state’s nearly bankrupt utilities after a federal judge denied Southern California Edison’s request for an immediate rate increase. 

After the ruling, Attorney General Bill Lockyer said an Edison victory Monday “would have provided a weapon to use against the state” in negotiations with the utilities. 

In a statement, Gov. Gray Davis also praised the ruling. He has said he hopes to have a debt-relief plan ready for consideration by Friday. 

“To the extent that it provides time to work on a comprehensive solution, this is a positive event,” said Assemblyman Fred Keeley, D-Boulder Creek, the lawmaker who wrote the bill allowing the state to enter long-term contracts to buy power. 

Proposals floated in the Legislature have included taking over the utilities’ transmission lines or hydroelectric dams or receiving stock options in the companies in exchange for financial assistance. 

Senate leader John Burton, D-San Francisco, has introduced a bill that would have the state buy the utilities’ transmission lines, which constitute about 60 percent of the state’s electric grid. The bill would also create a public power authority to operate the transmission lines. 

U.S. District Court Judge Ronald S.W. Lew Monday refused to grant Edison’s request for a preliminary injunction, which would have forced the California Public Utilities Commission to raise electricity rates within seven days. 

Edison had wanted rates raised by 1 cent per kilowatt hour per year for three years in an attempt to recoup about $2.5 billion in past wholesale electricity costs. 

Edison sued the PUC in November for refusing to lift a rate freeze that has been in effect since the state deregulated its utilities in 1996. The company wants to pass on to ratepayers wholesale electricity costs, which have skyrocketed since last summer. 

Edison and Pacific Gas and Electric say they have lost nearly $13 billion. Both are seeking to raise rates through the federal court. 

The judge’s ruling allows a trial on the underlying merits of the suit to go forward. No trial date was set, but a hearing was scheduled for March 5. 

Consumer groups praised the decision. 

“Edison’s attempts to achieve immediate rate relief were designed to increase the pressure on Sacramento for a legislated bailout,” Nettie Hoge, executive director of The Utility Reform Network, said. 

TURN, along with Los Angeles County, were allowed Monday to intervene in the federal case Monday. Judge Lew said both groups would contribute expertise necessary to unravel the complex issues in the case. 

Wall Street analysts said Monday’s decision alone would not move Edison closer to bankruptcy 

“The creditors are probably frustrated because they did lose leverage,” Linda Byus, an analyst at Dresdner Kleinwort Wasserstein, said. “But I don’t think it’s in anyone’s interest to see these companies go bankrupt.” 

A spokesman for Reliant Energy, one of the state’s largest suppliers of electric power, said Reliant would not immediately try to force Edison into involuntary bankruptcy. 

“We have not said that at ’X’ time or if ’X’ happens, we’ll start with proceedings,” Richard Wheatley said. “We continue to stand by the fact this is just another step in a long and arduous process” 

Reliant joined last Friday with Dynegy Inc. and Mirant to form a creditor’s committee “to explore options for receiving payment” from the state’s Independent System Operator and two investor-owned utilities. 

Edison does face a deadline Tuesday, when a group of banks will decide whether to extend a deadline on payments Edison owes. The utility said it would not speculate on what was likely to happen. 

Shares of Edison’s parent company, Edison International, fell 57 cents Monday to close at $12.53. Shares of PG&E fell 50 cents to close at $12.55. 

The central issue in the lawsuit now is whether the power purchases Edison made since wholesale prices began to skyrocket last summer were “reasonable” 

The PUC has claimed Edison could have paid less for power from other sources, making a huge rate hike unnecessary. 

Lew chastised Edison for characterizing a ruling he made Jan. 8 as a victory for the utility. Edison has said Lew’s ruling meant that the federal government, not the state, has authority over wholesale rates. 

Lew said Monday his decision was not as sweeping as Edison described. 

“The plaintiff’s description of the ruling is flatly wrong,” Lew said. 

Lew said his ruling was more narrow in scope and said the merits of the case will hinge on the review of Edison’s power purchases, a comment that drew praise from the PUC. 

“The judge never ruled against us on the merits of the case,” PUC attorney Harvey Morris said outside the courtroom. 

The lawsuit may be combined with a similar suit filed by PG&E. The two utilities serve nearly 9 million residential and business customers throughout California. 

Meanwhile, California entered a fifth consecutive week under a Stage 3 alert on Monday as power reserves threatened to fall below 1.5 percent. 

A statewide cold snap strained already tight resources and several power plants remained down for repairs and maintenance, said Stephanie McCorkle with the Independent System Operator, overseer of the state’s power grid.