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Industry News

5 Power Producers' Payment UltimatumPushes SoCal Ed Closer to Bankruptcy

LCG, Oct. 1, 2001--Five big power producers owed hundreds of millions of dollars by Southern California Edison Co. have pushed the utility a step closer to bankruptcy by asking it to sign an agreement spelling out how each will be repaid, the Los Angeles Times reported Saturday.

In a letter sent to SoCal Ed on Friday, the power producers demanded that the utility meet with them within two weeks to work out a payment plan, with the implication that they would drag the company into bankruptcy court if it failed to comply.

It takes only three creditors owed a combined $10,775 to force a company into involuntary bankruptcy, and the five -- Reliant Energy Inc., Mirant Corp., Dynegy Inc., Enron Corp. and Puget Sound Energy Co. -- are owed hundreds of millions of dollars.

"This group of creditors is significant in both number and amount and deserves and requires to be dealt with as such," says the letter sent by Palo Alto attorney William Bates III to SoCal Ed's lawyer, Thomas B. Walper of Los Angeles.

The letter expressed discontent that large creditors have been left out of plans to restore the utility's solvency. Under a so-called "rescue package" debated in the California legislature, SoCal Ed would have paid off smaller creditors known as "qualifying facilities" but would have been left owing $1 billion to the big power producers.

"We would be willing to discuss any ideas (Southern California Edison) has, but we don't want to waste anybody's time. Thus, as a first step we want to know whether (Southern California Edison) is interested in negotiating," the letter asked, demanding "a simple 'yes' or 'no' answer to that question."

"Of course, we reserve all our rights and remedies in the event that (Southern California Edison) does not want to meet on these terms or we cannot reach a mutually satisfactory agreement," Bates wrote.

The Times noted that frustration on the part of the power generators appeared to mount last Tuesday, when Edison announced that it had reached an agreement to pay off its $14-million debt to the city of Long Beach, which had been courted by Reliant and Mirant which were openly seeking a third creditor with which to file a bankruptcy petition.

SoCal Ed had also publicized repayment agreements reached with many qualifying facilities which are owed a combined $1.2 billion. The large power producers may have thought they were being left out of the repayment planning.

"(Southern California Edison) can take steps to assure that all creditor classes are treated equally," said Richard Wheatley, a spokesman for Reliant, said, and Patrick Dorinson, a Mirant spokesman, chimed in "It is time (Southern California Edison) made clear when, how much and even if it is going to pay us."

The letter from the five generators caught the attention of other creditors who have so far played along with SoCal Ed's strategy of winning a legislative rescue, the Times said.

"From our perspective, the days of luxury for Edison are over," said John Moorlach, treasurer for Orange County which holds $1 million of defaulted SoCal Ed bonds in its retirement plan. He said he believes that if the utility does not quickly reach an agreement with the generators, they will push the utility into bankruptcy court.

But he saw the letter more as a warning than as an ultimatum. "By doing this, the generators are trying to show that they are making a good-faith effort to reach a settlement first," Moorlach said.

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