Firms Push Edison Near Bankruptcy


Energy: Power generators ask firm to spell out how they will be repaid hundreds of millions of dollars for purchases under deregulation plan.

By NANCY VOGEL and JERRY HIRSCH
TIMES STAFF WRITERS

September 29 2001

SACRAMENTO -- Five big energy companies owed hundreds of millions of dollars by Southern California Edison pushed the utility a step closer to bankruptcy Friday by asking Edison to sign an agreement spelling out how each will be repaid.

The companies demanded that Edison meet with them within two weeks to work out a repayment plan and implied that otherwise they would drag the Rosemead-based utility into Bankruptcy Court. Under federal law, any three creditors can force a company to file for bankruptcy if they are owed a combined $10,775. The five generating companies collectively are owed hundreds of millions of dollars, although the exact total is not known.

The letter was a significant step in maneuvering over Edison's fate--a dance that has gone on for months but now appears to be nearing its close. Edison has been reaching deals with some of its creditors, but has kept others waiting. Some power generators, in turn, have been threatening to push Edison into bankruptcy, although so far only Mirant Corp. and Reliant Energy have publicly embraced that idea. And Gov. Gray Davis and legislative leaders have continued to debate a plan that the governor believes could avoid a bankruptcy.

The letter, sent by William Bates III, a Palo Alto attorney representing the five power generators, expressed frustration that Edison so far has been unwilling to work out a repayment plan with large power producers. Under the Edison rescue plan that the Legislature debated and ultimately adjourned without passing earlier this month, Edison would have settled with its smaller creditors but been left with $1 billion in debt to big power sellers.

"This group of creditors is significant in both number and amount and deserves and requires to be dealt with as such," says the letter to Edison's private attorney, Thomas B. Walper of Munger, Tolles & Olson in Los Angeles.

"We would be willing to discuss any ideas SCE has" about an agreement to repay its debt, the letter continues, "but we don't want to waste anybody's time. Thus, as a first step we want to know whether SCE is interested in negotiating. . . . Please give us a simple 'yes' or 'no' answer to that question.

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

The five companies are Reliant, Mirant, Dynegy Corp., Enron Corp. and Puget Sound Energy, which is the biggest investor-owned utility in Washington state.

Edison officials refused to comment.

The frustration on the part of the power generators appeared to mount Tuesday, when Edison announced that it had reached an agreement to pay off its $14-million debt to the city of Long Beach, which sold Edison electricity produced at a trash-fueled power plant on Terminal Island.

Edison has also reached repayment plans with many small and renewable power producers who collectively are owed $1.2 billion.

"Edison can take steps to assure that all creditor classes are treated equally," said Richard Wheatley, a spokesman for Reliant Energy in Houston, which is owed $100 million to $200 million by Edison.

A spokesman for Atlanta-based Mirant, which is also owed more than $100 million, sounded a similar note. "It is time SCE made clear when, how much and even if it is going to pay us," Patrick Dorinson said.

So far, other creditors have balked at the idea of pushing Edison into bankruptcy, believing that a judge would probably consider a bankruptcy petition premature until after the Legislature meets Oct. 9 in a special session to deal exclusively with Edison's plight.

Davis, who insists that Edison should not be allowed to file for bankruptcy, ordered the new session earlier this month after legislators adjourned without passing any legislation that would shrink Edison's debt.

Other Creditors Take Notice

Senate leader John Burton, (D-San Francisco), has said that any such bill would have to guarantee that the burden of paying off the utility's $3.9-billion debt does not fall on homeowners and small-business owners.

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

"From our perspective, the days of luxury for Edison are over," said John Moorlach, Orange County treasurer. The county holds $1 million of defaulted SCE bonds in its retirement plan.

Moorlach said he believes that if SCE does not quickly reach an agreement with the generators, they will push the utility into Bankruptcy Court.

"By doing this, the generators are trying to show that they are making a good-faith effort to reach a settlement first," Moorlach said.

But Jay Lawrence, spokesman for the Renewable Energy Creditors Committee, said his members believe the move by the generators shows they have backed off from an immediate involuntary bankruptcy petition filing, at least while they try to open negotiations with SCE.

"We still want to see a legislative solution, and we are against bankruptcy," Lawrence said.

Edison provides electricity to 11 million people. It racked up the $3.9-billion debt over the past year as it purchased high-priced electricity in the fledgling market California created under a 1996 deregulation plan. The state's deregulation plan included a rate freeze that barred Edison from passing the full cost of the power it bought on to customers.

By January, Edison's debt had grown so heavy that power sellers refused to deal with the utility. The state had to step in with taxpayer money to keep electricity flowing. So far, the state has spent $10.7 billion on power purchases.

Edison's counterpart in Northern California, Pacific Gas & Electric, suffered the same financial squeeze in the state's dysfunctional market. PG&E took itself into bankruptcy in April.

The generators' demand came on a day when Edison officials said they were close to winning an agreement from bankers to delay collecting on $200 million in loans until Oct. 19.

Shares of Edison International, the parent company of Southern California Edison, rose almost 5% Friday to close at $13.16 on the New York Stock Exchange.

*

Times staff writer Nancy Rivera Brooks contributed to this report.