Troubled utility expected to pay off more than $5 billion in past due bills to avoid bankruptcy
LOS ANGELES – More than a year after it began piling up debt to pay for electricity, troubled utility Southern California Edison is expected to pay more than $5 billion in past due bills Friday, freeing it from the threat of bankruptcy.
Edison was expected to secure a loan from investment banks this week that, combined with cash on hand, will allow it to remove debt that has damaged the utility’s credit rating and kept it from being able to buy power for its customers.
The state has been buying power for Edison and the state’s other two regulated utilities since last year.
“Payment is contingent on closing the financing, but it is still our intent to make the payments tomorrow,” said Brian Bennett, vice president of external affairs for Edison International, SoCal Edison’s parent.
Sometime Friday, Edison should pay approximately $5.5 billion to creditors. The utility will use $3.4 billion of cash on hand, plus about $400 million it collected from ratepayers in January and February. The remaining $1.6 billion will come from loans.
The loans will be backed by Edison first mortgage bonds and will be repaid from money collected from ratepayers over the next year.
Edison will pay for power bought from major power generators as well as smaller generators, known as qualifying facilities.
Bondholders will also be paid. But under the terms of a settlement with the state, dividends to common stock holders will not be paid.
Friday’s payments will not return the utility to creditworthiness or allow it to begin buying its own power. The utility estimates it will not recover its undercollection — the difference between the cost of power and what it was able to charge ratepayers — until sometime next year.
Edison, the state’s second-largest utility, first fell into debt in January, 2001, when it defaulted on payments due for power delivered the previous November and December. It was the first time in the company’s 110-year history that it failed to pay its bills.
Faced with the same power crisis caused by the state’s deregulation of utilities, Pacific Gas & Electric, the state’s largest utility, which serves Northern California, filed for bankruptcy protection in April 2001.
Edison chose not to follow that route and fought several times as groups of creditors threatened to force it into involuntary bankruptcy.
The company negotiated a settlement with Gov. Gray Davis that would allow it to issue bonds in exchange for selling the state its share of California’s power transmission system.
When that deal failed to gain legislative support, Edison settled a federal lawsuit against the California Public Utilities Commission. The settlement requires the state to maintain higher electricity rates until Edison recovers its undercollection.
“We believe the settlement puts Edison on the path to creditworthiness and we welcome Edison paying off their past debts even earlier than scheduled,” said Terrie Prosper, a spokeswoman for the CPUC.