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Industry News

California Lawmakers Face Special Session for SoCal Ed

LCG, Sept. 17, 2001--The California state legislature adjourned for the year early Saturday without approving a rescue package for Southern California Edison Co. Gov. Gray Davis promptly said he would get them back to work with the third special session related to the state's energy problems.

The effort to keep SoCal Ed out of bankruptcy court began in April when the state's largest utility, Pacific Gas & Electric Co., filed for protection under Chapter 11 of the federal bankruptcy law. At that time, Davis and the utility agreed on an arrangement under which the state would buy SoCal Ed's transmission assets for $2.76 billion and the company would use the money to pay off most of its $3.9 billion in debt.

The deal needed legislative approval, and both Davis and SoCal Ed warned lawmakers not to change a thing. State senators weren't paying attention.

When the state Senate passed legislation for a SoCal Ed bailout in July, the $2.76 billion transmission purchase had become a five-year option to buy the wires for $1.2 billion. The company would be allowed to issue up to $2.9 billion in revenue bonds to raise money to pay its creditors, but would have to service and repay the debt with revenues from only those of its customers having a peak demand of 500 kilowatts -- a very small fraction of its 11 million customers.

SoCal Ed and its parent holding company Edison International Inc. immediately dismissed the Senate bill as "unworkable," saying it placed a five-year cloud on its transmission assets and valued them at a bargain basement price.

The Senate bill went to the state Assembly, with warnings from the senators not to change a thing. Members of the lower house weren't paying attention.

When the Assembly passed legislation earlier this month, the value of the transmission assets had risen to $2.4 billion, but the purchase was still a five-year option. The $2.9 billion bond issue was still there, but the debt could be serviced by tapping revenues from a much broader customer base, though residential and small commercial customers were still shielded.

The measure then went back to the state Senate, where it languished in committee until the lawmakers went home Saturday morning.

SoCal Ed liked the Assembly version better than the state Senate version. On Friday, Edison International chief executive John Bryson said of the bill as amended by the Assembly "We believe this bill is workable and will restore SCE to investment-grade. We hope the Senate will favorably consider it. Until then, Edison will work closely with its creditors and ask for their continued forbearance until we move closer to a negotiated settlement."

That forbearance may be wearing thin for some creditors, and some observers are beginning to wonder whether bankruptcy would be such a bad thing for SoCal Ed. PG&E has been in bankruptcy court for five months and its customers have noticed no change in service.

State Senate President Pro Tem John Burton, a San Francisco Democrat, has never been a booster of the SoCal Ed bailout and on Friday, after learning of Davis' plan to call a special session, told a packed chamber "We should have killed this baby once and for all."

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