Edison International CFO Disputes 'Technical Insolvency' Claim
By Mark Golden
  
10/03/2000 
Dow Jones Energy Service 
(Copyright (c) 2000, Dow Jones & Company, Inc.) 
NEW YORK -(Dow Jones)- Edison International's treasurer and chief financial 
officer, Ted Craver, disputed Tuesday a claim made last week that 
California's utilities risk "technical insolvency" in 2001. 
Since May, California's three investor-owned utilities have been spending far 
more to purchase needed electricity than they are getting paid by customers. 
As a result, the undercollections in the "transition revenue account" of 
Edison's regulated utility unit, Southern California Edison, grew by $1.97 
billion between May 1 and August 31, the company reported to the Securities 
Exchange Commission. 
An article Wednesday in the Wall Street Journal, which is published by Dow 
Jones & Co., said that "if the cost of wholesale power continues to exceed 
the price these utilities are allowed to bill their customers, as currently 
seems likely, they could become technically insolvent sometime next year." 
"The way this term was used insinuated that you take the transition revenue 
account, and whatever the gross number is equates to the amount of debt that 
you would have to raise," Craver said in an interview. "That is not at all 
the way it works. That is not an accurate portrayal." 
California Gov. Gray Davis acknowledged the concerns Friday, saying, 
"California consumers have a legitimate need for California's utilities to 
remain solvent, and the state must be committed toward that end." 
But Edison's Craver said the situation is not that simple. 
"That transition revenue account balance says nothing about what we have to 
fund in the market," Craver said. "Southern California Edison has some 37 
balancing and memo accounts set up by the California Public Utilities 
Commission. What we have to fund is the net amount of all of them, plus 
whatever else is going on, and the net figure is considerably smaller than 
the $1.97 billion. It's like picking out one line item on the balance sheet 
and saying this is all that matters. No accountant does that or looks at it 
that way." 
Craver also said that the term "technical insolvency" has no specific meaning 
to him. 
A PG&E Corp (PCG) spokesman declined to comment when asked this week if it 
risks technical insolvency next year. The company is seeking refunds from 
independent generators that have been selling power to the state's utilities, 
and for the future it has asked the Federal Energy Regulatory Commission to 
consider a return to cost-based pricing specific to each generating station 
in the state. 
Utility bond analysts, nevertheless, are concerned about California utility 
debt. 
"I don't believe the utilities are going to go bankrupt, but they don't have 
any assurance from the legislature, governor or regulators," Bear Stearns's 
Ted Olshanski said. "The uncertainty is critical." 
Bear Stearns has a negative outlook on Edison and PG&E bonds due to the 
uncertainty on the recovery of these energy costs. 
This summer's period of undercollections has continued into the fall, with 
the California's wholesale market for Wednesday power at $135 a 
megawatt-hour, compared with the $65/MWh that SCE gets from customers. 
The current best asking price for on-peak power fall all of 2001 in southern 
California is $85/MWh. 
When asked how long Edison can continue to fund the difference between its 
purchase power costs and the revenue it receives from customers, Craver 
responded: "How long can ratepayers or anyone afford those prices, which 
don't have anything to do with reality? The market mechanisms don't work." 
California's utilities are hoping to make significant changes to the market, 
and some of those changes would require action by the state legislature, 
which is out of session until December. 
"I don't know that this is something that waits for the legislature," Craver 
said. "There are a lot of things that can be done before the legislature 
meets. We have significant issues before the FERC and the CPUC." 
Olshanski said he hoped for a political solution. 
"We're not sure how its going to end," he said. "We expect regulators and 
legislators to step up and provide for a constructive resolution. In the 
past, the California legislature has approved measures to make companies 
whole." 
-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com