Tuesday January 16 9:18 AM ET SoCal Edison in Default, Delays Payments

NEW YORK (Reuters) - Southern California Edison (news - web sites), one of the embattled large publicly owned California utilities, said on Tuesday it has temporarily suspended at least $596 million of payments, and is in default to some of its note-holders.

In a filing on Tuesday with the Securities and Exchange Commission (news - web sites), the unit of Rosemead, Calif.-based Edison International said it has ``temporarily suspended'' payment due Tuesday of $230 million of principal and interest on 5.875 percent notes, $215 million to the California Power Exchange, and $151 million to qualifying facilities, as well as ``certain other obligations.''

Failure to make the note payment constitutes a default under the notes, as well as a default on SoCal Edison's and Edison International's credit facilities, SoCal Edison said.

SoCal Edison said it took action to allow it to continue to operate while efforts to find a regulatory solution are underway. Separately, SoCal Edison said it and Edison International plan to postpone release of their fourth quarter and year-end 2000 fiscal results pending further developments.

SoCal Edison and Pacific Gas and Electric Co. (news - web sites), a unit of San Francisco-based PG&E Corp., have run up billions of dollars of debt this year because they are subject to a rate freeze and have been unable to pass on their skyrocketing wholesale power costs to consumers.

http://dailynews.yahoo.com/h/nm/20010116/ts/utilities_california_dc_55.html

-- Cave Man (caves@are.us), January 16, 2001

Answers

Tuesday, January 16, 2001

Power Firm Demands Utilities Pay Bills Now Electricity: Supplier says it will haul Edison and PG&E into bankruptcy court if money isn't forthcoming. Lawmakers scramble for a solution.

By NANCY VOGEL, MIGUEL BUSTILLO, Times Staff Writers

SACRAMENTO--Increasing the pressure on state lawmakers to craft at least a temporary solution to California's power crisis, a major power supplier threatened Monday to force Southern California Edison and Pacific Gas & Electric into bankruptcy court unless the utilities pay their bills due this week.

The move by Dynegy Inc. of Houston upped the ante on a day when legislators huddled with financial experts and lawyers but reached no agreement on a mechanism for the state to buy electricity for Edison and PG&E at rates far lower than they pay now--allowing the beleaguered utilities breathing room to restructure their massive debts.

"If we can't get this bill through in the next two days, this will start to unravel," said Stephen W. Bergstrom, president of Dynegy. "When and if they [Edison] default on Thursday, it puts us in a position where we have to take them into bankruptcy, and I'm sure others will be right beside us."

Bergstrom refused to say how much money Dynegy is owed, but said if any three creditors jointly petitioned the court, it would be enough to start involuntary bankruptcy proceedings.

Under a plan outlined this weekend by Gov. Gray Davis after marathon bicoastal negotiations, the state would use its excellent credit rating to purchase electricity and then resell it to debt-hobbled utilities.

The state Department of Water Resources has stepped in on an emergency basis to buy power to prevent blackouts, but Davis' plan would, overnight, make California the biggest single buyer of electricity in its own market.

Legislators generally backed the need for the state to buy power, but there has been no agreement on two key issues: the price and the duration of the contracts. The price needs to be low enough so that utilities, with the rates currently in place, can save enough to restructure their debts--but high enough so that the power producers will go along with the plan.

With attention focused on how Wall Street will view the tenuous agreement when markets reopen after the weekend, legislators were fighting multiple deadlines in trying to make good on the weekend promise to pass a bill by today.

Edison owes a major payment today to the Power Exchange, the market created in 1998 under deregulation.

Power industry sources say they believe Edison has the cash to make the payment, estimated at more than $150 million, but that the firm could play high-stakes political poker by delaying payment to increase pressure on lawmakers. Technically, Edison will not be in default on the payment until Thursday.

Edison officials refused to comment on the negotiations with state leaders or the firm's obligations to the Power Exchange. They said they would disclose details today in a filing with the federal Securities and Exchange Commission.

PG&E officials said Monday that they would pay their $40-million bill due this week. The utility has approximately $500 million in cash, a spokesman said, with a bill for about $580 million due Feb. 1.

Electricity sellers have been increasingly reluctant to supply California because of the deteriorating financial condition of the utilities.

The volume of electricity traded in the Power Exchange has dropped by roughly 75% in the last month. Grid operators have struggled daily to buy enough power to balance flow on high-voltage wires and prevent blackouts.

On Monday, a holiday during which many offices and businesses were closed, the state's power reserves shrank to nearly 5%.

Legislators, convened in an emergency session on the state's energy crisis, quickly seized on Davis' idea.

"We're working here around the clock, doing everything we can," said Assembly Speaker Bob Hertzberg (D-Sherman Oaks) during an afternoon break in talks among a half-dozen Republican and Democratic lawmakers. Also involved were the state's finance director, a bankruptcy lawyer, and two utility experts from Credit Suisse First Boston.

Their purpose was to craft a skeleton of the legislation that California will need to implement Davis' proposal and have it passed by at least one house of the Legislature today.

Senate leader John Burton (D-San Francisco) has said that while the Legislature works, power generators should be willing to give utilities leeway on bills coming due.

But that's unlikely unless the Legislature acts quickly, said Bergstrom of Dynegy. His company purchased three Southern California power plants when Edison, PG&E and San Diego Gas & Electric auctioned off assets as part of deregulation. Dynegy's plants can generate enough electricity to supply 2.8 million homes.

"We're just not going to do that," Bergstrom said, "because the stakes are too high."

He met with Davis and California lawmakers in Washington, D.C., last Tuesday evening and spoke to them again through a bicoastal video conference Saturday. The governor has been lobbying power plant owners to sign long-term contracts with the utilities at roughly 5.5 cents per kilowatt-hour--well below the recent market rate of 30 cents.

Power plant owners call that price unrealistic unless the contract lasts at least six or seven years, allowing them to recoup money later, when the cost of natural gas is expected to fall and make electricity cheaper to generate.

Contract details do not matter, Bergstrom said, so long as the utilities are so debt-ridden as to be unworthy of credit. That's why the state needs to step in to buy power and guarantee payment, he said.

But some lawmakers have downplayed the urgency.

Burton has said it is more important to get the details of a bill right than to move quickly.

To insert the state as a go-between in California's electricity market raises many complex financial and political issues.

Even lawmakers who support helping the utilities insist that consumers get something in return.

Stock options, ownership of utility transmission lines or takeover of hydroelectric power plants--a cheap source of power that affects the environmental health of many Sierra Nevada rivers--are among the assets the state should consider, Burton said.

Hertzberg spokesman Paul Hefner said lawmakers have included bankruptcy lawyers and financial experts not solely to impress Wall Street, but also because they realize they are entering a realm they know little about.

He said politicians clearly want to "send a message to financial markets" that they are working with industry experts when considering the consequences of their legislation.

But he said their main goal is to get technical advice from someone who is not a bureaucrat and is not employed by a power firm.

http://www.latimes.com:80/news/state/20010116/t000004367.html

-- Cave Man (caves@are.us), January 16, 2001.