SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 22, 2000
EDISON INTERNATIONAL
(Exact name of registrant as specified in its charter)
CALIFORNIA 001-9936 95-4137452
(State of principal jurisdiction of (Commission file (I.R.S. employer
incorporation of organization) number) identification no.)
2244 Walnut Grove Avenue
(P.O. Box 800)
Rosemead, California 91770
(Address of principal executive offices, including zip code)
626-302-2222
(Registrant's telephone number, including area code)
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Items 1 through 4, 6, 8 and 9 are not included because they are inapplicable.
Item 5. Other Events
As previously disclosed in the registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000, Southern California Edison Company (SCE),
the electric utility subsidiary of Edison International, is continuing to
experience materially adverse impacts from unusually high prices for energy and
ancillary services procured through the California Power Exchange (PX) and the
California Independent System Operator (ISO). The adverse impacts have grown
increasingly severe during November and December 2000. Unexpectedly high prices
during those months have resulted in substantial increases in the amount of
undercollections in SCE's transition revenue account (TRA), which is a
regulatory asset account in which SCE records the difference between revenues
received from customers through currently frozen rates and the costs of
providing service to customers, including power procurement costs. The amount of
undercollections recorded in SCE's TRA was $3.202 billion as of November 30,
2000, including undercollections during October and November of $283 million and
$561 million, respectively. The TRA undercollections are continuing to grow
during the month of December 2000 and are expected to reach $4.9 billion by
year-end, as discussed below.
The increasing undercollections, coupled with SCE's anticipated near-term
capital requirements and the adverse reaction of the credit markets to continued
regulatory uncertainty over SCE's ability to recover its procurement costs, have
materially and adversely affected SCE's liquidity. Unless regulatory actions are
taken that restore the confidence of the credit markets in SCE's financial
condition, and if SCE is unable to secure additional sources of financing, SCE
may have to seek the protection of the bankruptcy court.
On December 22, 2000, in a special board meeting, the board of directors of SCE
decided, in view of the matters discussed in this report, not to declare a
quarterly common stock dividend that customarily would have been paid to Edison
International on January 31, 2001. On the same date, the board of directors of
Edison International also held a special meeting and, in view of the same
matters, decided not to declare a common stock dividend that would have been
paid to its shareholders on January 31. Decisions regarding the declaration of
future dividends will be made by the boards in light of any further actions by
the CPUC and the FERC to reform California's dysfunctional wholesale electricity
markets, bring prices back to more reasonable levels, and allow adequate cost
recovery for utility companies.
On December 22, 2000, SCE also announced cost-reduction measures affecting
electric system operations, maintenance and new investments that will result in
a reduction of an initial $100 million in SCE spending for 2001 and impact
approximately 400 contract labor jobs. A press release issued by Edison
International regarding the dividend action and the cost-cutting measures is
attached as Exhibit 99.1.
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Other recent developments include the following:
o Instead of typically low electricity prices in November and December, the
price of wholesale electricity has risen more than 1700% over a year ago
and more than 300% during the past month.
o As of November 30, 2000, the book value of SCE's stranded assets to be
recovered by the end of the rate freeze, less estimated credits from the
market valuation or pending sale of remaining generation assets, and the
balance of the TRA were as follows:
In millions as of November 30, 2000
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Unamortized nuclear investment - net $ 554
Unamortized loss on sale of plant 66
Transition-related balancing accounts:
Transition cost balancing account (TCBA) 66
Generation asset balancing account (GABA) 515
Coal and hydro balancing accounts (1,130)
Flow-through taxes 149
Other regulatory assets 37
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Subtotal 257
Book value of remaining generation plant 394
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Total stranded assets 651
Less projected credits:
Excess of market value over book for hydro assets (500)
Market value of generating plants based on
pending sale prices (1,083)
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Net amount of stranded assets (overcollection) $ (932)
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Transition revenue account (TRA) undercollection $ 3,202
SCE estimates that at December 31, 2000, the TRA undercollection will be
$4.9 billion. Recovery by SCE of its TRA undercollections depends in large
part on favorable regulatory actions to control wholesale electricity
prices and allow retail rate increases, as discussed below. At any time
that all or a portion of the existing TRA undercollections are not deemed
to be probable of recovery, the undercollections or a portion thereof must
be charged against earnings. Thereafter, any further undercollections not
recovery also would be charged to earnings, and any overcollections would
probable of be recorded as earnings. Substantial earnings charges at SCE
could materially and adversely affect its financial condition and results
of operations.
o Pacific Gas and Electric Company (PG&E) has been appealing an October 1999
order of the CPUC that interpreted and applied AB 1890, the California
electric industry restructuring statute, to prohibit California electric
utility companies from either recovering TRA undercollections after the end
of the statutory rate freeze or offsetting those undercollections with
overcollections of its generation-related assets and obligations (commonly
referred to as "stranded costs") which are recorded in a regulatory
balancing account called the transition cost balancing account (TCBA). In
March 2000,
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the CPUC denied PG&E's petition for rehearing of the October
1999 order. Subsequent petitions for judicial review of the CPUC's
decisions were denied by the California Court of Appeal and, on November
21, 2000, by the California Supreme Court.
o On December 7, 2000, the ISO declared a Stage 3 emergency for the first
time since it commenced operations in 1998. A Stage 3 emergency indicates
that rolling blackouts may be required because of inadequate supplies of
electricity. On December 13, 2000, the ISO announced that generators of
electricity were refusing to sell into the California market due to
concerns about the financial viability of SCE and PG&E. In response to the
crisis, the United States Secretary of Energy announced that he intended to
use emergency powers under the Federal Power Act to order out-of-state
generators to send power into California. On December 14, 2000, the
Secretary of Energy issued an order requiring power companies to make
arrangements to generate and deliver electricity as requested by the ISO
after the ISO certifies that it has been unable to acquire adequate
supplies of electricity in the market. The order was to expire on December
21, 2000, but has been extended through December 27, 2000, unless it is
altered or revoked by a further order.
o On December 7, 2000, a CPUC assigned commissioner's ruling suspended the
schedule in SCE's application for adoption of a rate stabilization plan.
The rate stabilization plan was filed with the CPUC on November 16, 2000,
and proposed that rates for all customer groups would increase by 9.9%,
excluding low-income customers whose increase would be 4.95%, for the
period from January 1, 2001 through December 31, 2002. Under the proposed
plan, beginning in 2003, rates would be adjusted at the end of six-month
intervals by up to 2.5% depending on market price fluctuations and whether
procurement costs were being under- or over-recovered. The proposed rate
increases were intended by SCE to be sufficient to recover its ongoing
procurement costs and TRA undercollections, assuming that other regulatory
and/or legislative actions are taken that will adequately reduce the high
prices for wholesale electricity in California. The December 7 ruling,
which was issued by the CPUC president acting as the commissioner assigned
to the rate plan proceeding, suspended the schedule in the proceeding until
further notice. The ruling noted that the CPUC has not yet ruled on SCE's
pending generation divestiture and has made no determination that the rate
freeze can end based on estimated market valuation of other facilities or
that the rate freeze has ended. Thus, the ruling stated that SCE's
application is premature. The ruling suspended the proceeding on SCE's rate
plan until the CPUC provides further guidance by disposing of pending
divestiture and market valuation proceedings. The ruling also stated that
SCE's rate plan cannot become effective on January 1, 2001, as proposed,
without further action of the CPUC.
o On December 13, 2000, SCE released a statement calling for dramatic reform
of the California electricity market structure. The proposed reforms
include (1) public utilities being charged again with responsibility to
plan for, acquire and assure sufficient power to meet the state's demands;
(2) a system of cost-based wholesale pricing being implemented in which the
majority of power is either generated by utility companies or delivered to
them under long-term contracts at stabilized prices; and (3) both the price
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and supply of electricity being determined under a stable framework. A copy
of the statement is attached as Exhibit 99.2.
o On December 15, 2000, the FERC released a final order containing remedies
and other actions in response to the problems in the California electricity
market. The order, among other things, (1) eliminated the requirement for
California utilities to buy and sell power exclusively through the ISO and
PX; (2) created a benchmark price for wholesale bilateral power contracts;
(3) created penalties for under-scheduling power loads; (4) provided for an
independent governing board for the ISO; and (5) established a "soft" price
cap of $150 so that bids above $150 cannot set the market clearing prices
paid to all bidders. In response to the order, SCE issued a press release,
attached as Exhibit 99.3, charging that the FERC's actions will do nothing
to protect California from unjust and unreasonable wholesale electricity
prices. SCE also criticized FERC's price cap and noted that a similar price
cap in effect during the week before the FERC order did not stop prices
from skyrocketing. On December 18, 2000, SCE filed with the FERC an
emergency request for rehearing and expedited action seeking
reconsideration of the December 15 order. On December 26, 2000, SCE filed
an emergency petition challenging the FERC order in the federal court of
appeals in Washington, D.C. The petition seeks a writ of mandamus requiring
the FERC to immediately establish cost-based wholesale rates.
o Fitch has downgraded its short- and long-term credit ratings for SCE and
kept the ratings under watch with a negative outlook. Moody's Investors
Service also has placed SCE's credit ratings under review for possible
downgrades. Both rating agencies specifically stated that they were basing
their actions on liquidity pressures and uncertainty regarding SCE's
recovery of its power purchase expenses through retail rates. Standard &
Poor's also placed its ratings of SCE on credit watch with negative
implications, citing the escalating financial burden resulting from SCE's
substantial undercollection of purchased power expenses. On December 20,
2000, an analyst at Standard & Poor's was quoted as saying that, if SCE did
not receive regulatory relief within the next two days, the ratings could
fall below investment grade to reflect the likelihood of imminent default.
Following the CPUC decision on December 21, 2000, described below, Fitch,
Moody's Investors Service and Standard & Poor's each indicated that they
view the decision as a positive first step, but that their ratings of SCE
depend on what action is taken by the CPUC at its meeting on January 4,
2001, at which a rate increase is expected to be considered. Moody's
stated, "Specifically, at that meeting, the utilities need to obtain the
right to immediately raise rates by a sizeable amount and must obtain the
unquestioned and unambiguous ability to recover past and future wholesale
procurement costs. The failure by the CPUC to act in a prompt and
constructive way around these two issues could result in the utilities'
ratings being downgraded to below investment grade thereby further
negatively impacting their ability to fund their wholesale power costs and
their day-to-day operations." Neither Edison International nor SCE can
provide any assurance as to what actions may be taken by the CPUC or the
rating agencies.
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o On December 20, 2000, SCE was advised by certain of its lending banks that,
given SCE's precarious financial condition, they were reserving rights
under existing lines of credit to assert the existence of a default and
requested that SCE provide them with evidence of SCE's ability generally to
pay its debts as they mature. On December 21, 2000, SCE obtained funds from
the lenders under the lines of credit, the proceeds of which were used in
part to repurchase pollution control bonds as described below. Certain
other vendors have requested assurances as to SCE's creditworthiness or the
pledging of collateral as a condition to providing further credit.
o On December 20, 2000, SCE filed an amended rate stabilization plan
application with the CPUC, stating that the CPUC must recognize that the
statutory rate freeze is now over in accordance with California law, and
requesting the CPUC to approve an immediate 30% rate increase to be
effective, subject to refund, on January 4, 2001. SCE's plan included a
trigger mechanism allowing for rate increases of 5% every six months if
SCE's undercollected balance of energy procurement costs exceeds $1
billion. SCE also proposed limiting the increase for low-income customers
to 10%. SCE proposed that the proceeding be bifurcated into two phases:
Phase I would address the need for the immediate, interim rate increase;
and Phase II, during January 2001, would address the final rate
determination and resolution of related policy issues.
o At its December 21, 2000 meeting, the CPUC issued an order that
consolidated SCE's original rate stabilization plan application (filed on
November 16, 2000) with a similar application filed by PG&E and a petition
filed by The Utility Reform Network (TURN) and scheduled hearings on the
rate stabilization plans for December 27 and 28, 2000. The CPUC order said
that the hearings would (1) determine when the rate freeze will end; (2)
determine any necessary adjustments to current cost recovery plans; (3) if
the rate freeze has ended, determine what adjustments to rates are
appropriate to maintain the utilities' ability to provide adequate service;
(4) address the notice requirements for a rate increase; (5) evaluate
whether it is in the public interest for the utilities to divest remaining
generation facilities; and (6) evaluate whether power produced from
retained generation assets should serve native load and the ratemaking such
actions entail. The CPUC said in the order that it "intends to conduct the
hearings in such a manner that the Commission can issue orders at its
January 4, 2001 business meeting." The CPUC also ordered an independent
audit to review the books and records of SCE and PG&E to verify the
utilities' claims and the revenues and costs accrued by the utilities, and
to verify the impact of TURN's proposal. In the order, the CPUC stated, "We
intend to take actions to avoid continuing conditions that may jeopardize
the utilities' creditworthiness and their ability to continue to procure
energy on behalf of consumers. Therefore, we believe that retail rates in
California must begin to rise. It is our intent to maintain the utilities'
access to capital on reasonable terms."
o SCE has been unable to complete the syndication of a $1 billion revolving
credit agreement. In addition, SCE recently has been unable to market its
commercial paper and other short-term financial instruments. SCE has had to
repurchase over $419 million of pollution control bonds that could not be
remarketed in accordance with their terms
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because of SCE's credit condition. SCE has $131 million of additional
pollution control bonds that could be presented for similar repurchase.
SCE cannot yet predict what impact the interim measures taken by the CPUC at its
December 21, 2000 meeting will have on SCE's liquidity. SCE also cannot provide
any assurance that actions that may be taken by the CPUC at its January 4, 2001
meeting will be sufficient to support adequate liquidity for SCE and resolve
concerns about SCE's creditworthiness. SCE's financial difficulties could lead
to reduced quality and reliability of the electricity services SCE provides to
its customers, interruptions in service, and further reductions in SCE's
workforce and capital expenditures.
The matters discussed above may materially and adversely affect Edison
International and certain of its other subsidiaries. In connection with the
ratings actions described above as to SCE, similar actions were taken by Fitch,
Moody's Investors Service and Standard & Poor's with respect to the debt ratings
of Edison International. The rating agencies also have placed the ratings of
Edison Mission Energy and Edison Capital, or their financing subsidiaries, under
review for possible downgrade or on negative outlook because of concerns about
their ability to obtain credit and maintain cash flow in light of the challenges
facing Edison International because of SCE. If the operations and financial
results of Edison Mission Energy and Edison Capital are materially and adversely
affected, the impact on Edison International could also be material.
In the preceding discussion and elsewhere in this report, the words "expects,"
"believes," "anticipates," "projects," "probable," and other similar expressions
are intended to identify forward-looking information that involves risks and
uncertainties. Actual results or outcomes could differ materially as a result of
such important factors as further actions by state and federal regulatory bodies
setting rates, adopting or modifying cost recovery, accounting or rate setting
mechanisms, and implementing the restructuring of the electric utility industry;
the effects, unfavorable interpretations and implementations of new or existing
laws and regulations relating to restructuring, taxes and other matters; the
actions of securities rating agencies; changes in prices of electricity and fuel
costs; the availability of credit; changes in financial market conditions; the
effects of increased competition in the electric utility business and other
energy-related businesses; the amount of revenue available to recover both
transition and non-transition costs; the ability to sell or retain electric
generation assets; the ultimate selling price of those plants that are sold; new
or increased environmental liabilities; the ability to create and expand new
businesses such as telecommunications; weather conditions; and other unforeseen
events, some of which are discussed above.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable
(b) Not applicable
(c) Exhibits
99.1 News Release of Edison International dated December 22, 2000
99.2 Media Statement of Southern California Edison Company dated December
13, 2000
99.3 News Release of Southern California Edison Company dated December 15,
2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDISON INTERNATIONAL
(Registrant)
KENNETH S. STEWART
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KENNETH S. STEWART
Assistant General Counsel and Assistant Secretary
December 26, 2000
