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): October 17, 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 June 30, 2000, and Current Report on Form 8-K dated September
25, 2000, Southern California Edison Company (SCE), the electric utility
subsidiary of Edison International, is experiencing adverse impacts from
unusually high prices for energy and ancillary services procured through the
California Power Exchange and the California Independent System Operator.
Because of the high prices, SCE has received insufficient revenues from
customers through currently frozen rates to cover all costs of providing service
during each month since May 2000. The amount by which the revenues are
insufficient to cover costs is recorded as a negative balance, or
undercollection, in a regulatory asset account called the transition revenue
account (TRA). The amount of undercollections recorded by SCE in its TRA was
$2.358 billion as of September 30, 2000. Current published prices for future
deliveries of wholesale electricity suggest that wholesale prices and other
costs of providing service to customers will continue to exceed SCE's authorized
rates for the foreseeable future, resulting in continued increases in the
undercollected TRA balance.
Past decisions of the California Public Utilities Commission (CPUC), as
discussed below, allow SCE to recover TRA undercollections only from any future
positive revenues attributable to the account through the end of the current
statutory rate freeze period. Under California's electric industry restructuring
statute (known as "AB 1890"), the statutory rate freeze period ends for SCE as
of the earlier of March 31, 2002, or the date when SCE has recovered all of its
generation-related assets and obligations (commonly referred to as "stranded
costs"). A regulatory balancing account called the transition cost balancing
account (TCBA) has been created to record these costs. Based on current
projections of future wholesale energy prices, SCE anticipates that it will be
unable to recover its TRA undercollections before the end of the statutory rate
freeze. Therefore, if the CPUC does not modify its past decisions and SCE is
unable to obtain other regulatory or judicial relief, SCE likely will not be
able to recover its TRA undercollections.
In October 1999, the CPUC adopted an order that interpreted and applied AB 1890
to prohibit SCE and other California electric utility companies from either
recovering TRA undercollections after the end of the statutory rate freeze or
offsetting those undercollections with overcollections of stranded costs in the
TCBA. Pacific Gas and Electric Company (PG&E) requested a rehearing of that
order, which the CPUC denied in March 2000. PG&E then sought judicial review of
those CPUC decisions, but on September 6, 2000, the California Court of Appeal
denied PG&E's petition. On September 18, 2000, PG&E filed a petition with the
California Supreme Court for review of the decision of the Court of Appeal. SCE
has filed an amicus curiae brief in support of PG&E's petition. The CPUC filed
an answer to PG&E's petition for review on October 10, 2000, in which counsel
for the CPUC argued, among other things, that the petition should be denied on
procedural grounds and because "the Commission's interpretation of AB 1890 on
the issue of carrying over costs is the only possible interpretation of the
statute."
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On October 4, 2000, SCE filed with the CPUC an emergency petition for expedited
modification of the CPUC's October 1999 and March 2000 decisions. In the
emergency petition, SCE argued that (1) modification of the prior decisions is
justified by significant new facts, a material change in conditions, and a basic
misconception of law by the CPUC; (2) the prior decisions violate federal law by
preventing SCE from recovering costs incurred pursuant to tariffs and rate
schedules filed with the Federal Energy Regulatory Commission (FERC); and (3)
the prior decisions seriously misinterpreted AB 1890. Accordingly, SCE's
emergency petition requested that the CPUC modify its prior decisions to allow
electric utility companies to carry over costs, excluding stranded costs,
incurred during the statutory rate freeze period to the post-rate freeze period,
and to recover those costs over a reasonable period of time. The emergency
petition also asked for expedited consideration with a decision at the CPUC's
meeting on October 19, 2000. SCE filed with the CPUC on October 5, 2000 an ex
parte request for immediate suspension of the effectiveness of portions of the
October 1999 and March 2000 CPUC decisions. The assigned CPUC administrative law
judge issued rulings requesting SCE to provide specified financial information
by October 17, 2000, giving other parties until October 30, 2000 to file
comments on the requested information and file responses to SCE's emergency
petition, and giving parties until October 20, 2000 to respond to SCE's ex parte
suspension request. On October 12, 2000, SCE again requested that the CPUC
address SCE's ex parte suspension request at the CPUC's October 19 meeting. PG&E
has filed an emergency petition and a suspension request which parallel those
filed by SCE, and to which the same procedural schedule applies.
On October 17, 2000, the assigned commissioner and the administrative law judge
in the CPUC proceedings described above issued a joint ruling (1) stating that
they will consider the accounting mechanisms developed by the CPUC, including
the TRA and TCBA, (2) scheduling a prehearing conference on October 27, 2000,
and (3) directing SCE and PG&E to file statements by October 25 that propose
initial steps in modifying the accounting provisions to provide interim relief,
and a schedule that permits a decision on this matter by the end of the year. In
the joint ruling, the assigned commissioner and the administrative law judge
took "official notice" of the wholesale market prices for electric power, which
"reflect the fact that the wholesale market is not workably competitive," and
said: "We also note that these wholesale prices are being paid by the utilities,
and--but for the rate freeze--would be reflected in retail bills for customers
of Edison and PG&E . . . . Accelerating the end of the rate freeze under these
conditions would expose ratepayers to price volatility and rate increases. We
also recognize that preserving the shelter of the rate freeze for ratepayers may
impose costs on the utilities that may be appropriate for recovery over time."
They also stated that at the prehearing conference on October 27 they "will
develop a schedule for submitting testimony related to potential changes to the
TCBA, the TRA, and the interaction of these accounting mechanisms, including,
for example, such methods as applying generation revenues to offset operating
losses, or transferring the TRA undercollection to the TCBA. We believe
creative, equitable solutions can be developed." In a statement accompanying the
joint ruling, the President of the CPUC noted claims that recent power purchase
liabilities have undermined the financial integrity of California's utilities,
and stated that the magnitude of the claims imposes a responsibility on
regulators to evaluate the utilities' financial circumstances on behalf of
utility customers and the state. The CPUC President said that the CPUC "will
review the books, records and financial circumstances of the
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utilities to determine what additional action is required to protect
California's consumers and to mitigate the effects of power purchase costs on
California's utilities." The CPUC President also stated that "it is crucial to
explore equitable solutions to this problem, including how the Commission should
revise the accounting procedures and cost recovery mechanisms related to the
Transition Cost Balancing Account and the Transition Revenue Account. These
approaches might include, for example, whether the generating revenues that have
been earned should be used to net out operating losses." At the CPUC's meeting
on October 19, 2000, two more members of the five-person CPUC voiced support for
the joint ruling. The full text of the joint ruling and the CPUC President's
statement are attached to this report as Exhibits 99.1 and 99.2.
On October 17, 2000, The Utility Reform Network (TURN), a customer advocacy
group, petitioned the CPUC to modify, apparently retroactively, a 1998 CPUC
decision in such a way as to require all TRA undercollections and
overcollections to be transferred to the TCBA on a monthly basis. SCE believes
that TURN's requested modifications likely would preclude SCE from recovering a
substantial portion of its stranded costs and ongoing power procurement costs.
SCE will oppose TURN's petition.
SCE cannot predict what actions the CPUC will finally take in the proceedings
described above or their financial impact on SCE.
SCE is continuing to work with the CPUC, the FERC, the California Electricity
Oversight Board, the California Power Exchange, and the California Independent
System Operator to fix the market problems that have resulted in the recent high
prices for wholesale energy and ancillary services. On October 16, 2000, SCE,
PG&E and TURN filed a joint petition for the FERC to (1) immediately find the
California wholesale electricity market to be not workably competitive and the
resulting prices to be unjust and unreasonable; (2) immediately impose a cap on
the price for energy and ancillary services; and (3) institute further expedited
proceedings regarding the market failure, mitigation of market power, structural
solutions, and responsibility for refunds. Equitable solutions to the current
market problems are essential to the long-term financial stability of SCE.
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As of September 30, 2000, the book value of the 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 book value of the TRA
are as follows:
In millions
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Unamortized nuclear investment - net $ 783
Unamortized loss on sale of plant 76
Transition-related balancing accounts:
Transition cost balancing account (TCBA) (159)
Generation asset balancing account (GABA) 510
Coal and hydro balancing accounts (807)
Flow-through taxes 132
Other regulatory assets 35
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Subtotal 570
Book value of remaining generation plant 363
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Total stranded assets 933
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) $ (650)
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Transition revenue account (TRA) undercollection $ 2,358
The amounts in the above table are based on SCE's application of the ratemaking
procedures previously approved by the CPUC for recording amounts in the TRA, the
TCBA and related accounts, but the balances reflected here have not been
approved by the CPUC. As discussed above, the CPUC may change the applicable
ratemaking and accounting procedures, and could propose to make changes
retroactively.
There are many factors that affect SCE's ability to recover its stranded costs
and its TRA undercollections. Based on the valuations of generating assets that
have been filed with the CPUC, SCE believes it is probable that the company will
be able to recover its stranded costs that are recorded in the TCBA. SCE also
believes it is probable that the company will be able to recover its costs that
are recorded as undercollections in the TRA. Recovery by SCE of its TRA
undercollections, however, depends on favorable regulatory actions as described
above, as well as other factors such as weather conditions, market prices of gas
and electricity, levels of sales, and economic conditions, about which there can
be no certainty. Under Statement of Financial Accounting Standards (FAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation," the TRA
undercollections can be recorded as a regulatory asset on the balance sheet
rather than being charged to earnings if it is probable that these
undercollections will be recoverable through the ratemaking process. 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 probable of
recovery also would be charged to earnings, and any overcollections would be
recorded as earnings. Substantial earnings charges at SCE could adversely affect
SCE's ability to declare and pay dividends to Edison International, which in
turn could adversely affect Edison
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International's liquidity and ability to pay dividends. SCE is reviewing on
an ongoing basis the facts and circumstances relating to the TRA
undercollections in light of FAS No. 71.
SCE's liquidity is being affected materially and adversely by the significant
extent to which costs have exceeded revenues in recent months and are continuing
to exceed current revenues, as well as by uncertainties about SCE's ability to
recover these past and future undercollections. On October 10, 2000, the CPUC
approved SCE's application to increase its authorized level of borrowing to
finance regulatory balancing accounts from $700 million to $2 billion. The
increase may be used only to finance the purchase of wholesale electric power
for delivery to retail customers, which is the source of most of the TRA
undercollections. SCE needs to arrange additional bank credit facilities to
finance current and expected balancing account undercollections and other
operating requirements. SCE has received commitments from a lender to provide
interim financing. Additionally, SCE has received commitments from a lender to
arrange permanent financing. The commitments are subject to documentation and
other conditions, however, and there can be no assurance that the permanent
financing actually will be obtained. The ability of SCE to meet its obligations
as they come due will depend in significant part upon the willingness of
regulatory bodies to allow SCE to recover in rates the costs discussed above.
On October 20, 2000, Edison International reported third quarter 2000 earnings
for itself, SCE and other subsidiaries. A copy of Edison International's press
release is attached as Exhibit 99.3.
In the preceding discussion and elsewhere in this report, the words "expects,"
"believes," "anticipates," "projections," "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 including the sale or retention and ongoing operation of
remaining generation assets; the effects, unfavorable interpretations and
implementations of new or existing laws and regulations relating to
restructuring, taxes and other matters; the effects of increased competition in
the electric utility business and other energy-related businesses, including
direct customer access to retail energy suppliers and the unbundling of revenue
cycle services such as metering and billing; changes in prices of electricity
and fuel costs; changes in financial market conditions; 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 Joint Assigned Commissioner's and Administrative Law Judge's Ruling
Regarding Potential Review and Modification of Certain Accounting
Procedures and Scheduling a Prehearing Conference.
99.2 Statement of California Public Utilities Commission President Loretta
Lynch
99.3 Press Release of Edison International
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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
October 20, 2000
