Message-ID: <20444156.1075846349192.JavaMail.evans@thyme> Date: Thu, 5 Oct 2000 07:24:00 -0700 (PDT) From: miyung.buster@enron.com To: filuntz@aol.com, liz@luntz.com, nicholas.o'day@enron.com, mike.dahlke@enron.com, jennifer.rudolph@enron.com Subject: Edison International CFO Disputes 'Technical Insolvency' Claim Cc: steven.kean@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: steven.kean@enron.com X-From: Miyung Buster X-To: Joe Hartsoe@ENRON, Sandra McCubbin@EES, Susan Mara@EES, Paul Kaufman@ECT, Karen Denne@ENRON, Jeff Dasovich@EES, Mark Palmer@ENRON, James D Steffes@EES, Richard Shapiro@EES, Elizabeth Linnell@EES, Jeannie Mandelker@ECT, filuntz@aol.com, Mark Schroeder@ECT, Peter Styles@ECT, Liz@luntz.com, Mona L Petrochko@EES, Peggy Mahoney@EES, Nicholas O'Day, Mike Dahlke, Rob Bradley@ENRON, Shelley Corman@ENRON, Jennifer Rudolph X-cc: Steven J Kean X-bcc: X-Folder: \Steven_Kean_Dec2000_1\Notes Folders\Heat wave X-Origin: KEAN-S X-FileName: skean.nsf 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