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): February 1, 2001
SOUTHERN CALIFORNIA EDISON COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 001-2313 95-1240335
(State or principal jurisdiction of (Commission file (I.R.S. employer
incorporation or organization) number) identification no.)
2244 Walnut Grove Avenue
(P.O. Box 800)
Rosemead, California 91770
(Address of principal executive offices, including zip code)
626-302-1212
(Registrant's telephone number, including area code)
Items 1 through 4, 6, 8 and 9 are not included because they are inapplicable.
Item 5. Other Events
As previously reported, Southern California Edison Company (SCE), the electric
utility subsidiary of Edison International (EIX), has temporarily suspended
payment of certain obligations. From January 16, 2001 through February 5, 2001,
SCE has failed to pay approximately $395 million of maturing commercial paper.
SCE has approximately $136 million of commercial paper still outstanding that
matures at various times during February, March and April 2001. As previously
reported, on January 16, 2001, SCE failed to pay $200 million of principal of
one maturing series of its senior unsecured notes and accrued interest totaling
approximately $30 million on certain series of its senior unsecured notes and
first mortgage bonds. In addition, on February 1, 2001, SCE failed to pay an
interest installment of approximately $5.1 million on its Floating Rate Notes
due 2002. Under the indenture for SCE's senior unsecured notes, the failure to
pay principal was an immediate event of default as to the one series of notes on
which the principal was due, and the failure to pay interest on other series of
notes will become an event of default as to each affected series if not cured
within 30 days. Under the indenture for SCE's first mortgage bonds, the failure
to pay an installment of interest will become an event of default with respect
to all the outstanding bonds if not cured within 60 days. If an event of default
occurs as to any series of senior unsecured notes, the trustee or the holders of
25% in principal amount of the notes of such series may declare the principal of
the notes of that series to be immediately due and payable. If an event of
default occurs as to any series of first mortgage bonds, the trustee or holders
of 25% in principal amount of all the outstanding bonds may declare the
principal of all the bonds to be immediately due and payable. In addition, SCE's
failure to pay any obligation for borrowed money in an aggregate amount in
excess of $10 million would constitute an event of default with respect to all
of the senior unsecured notes and SCE's outstanding quarterly income preferred
securities if not cured within 30 days after notice from the trustee or the
holders of the securities. No such notice has been received by SCE.
On February 1, 2001, SCE did not make a payment due to the California Power
Exchange (PX) for energy purchases by the California Independent System Operator
(ISO) of approximately $34 million. Through February 5, 2001, SCE has deferred
payments for purchased power and related services aggregating approximately $743
million to the PX, ISO and qualifying facilities (QFs). Through February 28,
2001, approximately $733 million of additional purchased power payments will
become due to the PX, ISO and QFs. These amounts do not include payments which
will become due after such dates for power delivered before such dates. In
addition, as of February 5, 2001, SCE has withheld payment of $79.8 million of
PX energy credits for energy service providers. As of February 5, 2001, SCE has
cash reserves of about $1.36 billion. SCE's current cash flow forecast shows
that, if SCE had paid all obligations as they became due, SCE would have run out
of cash on February 2, 2001.
Due to downgrades in SCE's short-term credit ratings and SCE's failure to pay
its obligations to the PX, the PX has suspended SCE's market trading privileges
and sought to liquidate SCE's
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block forward contracts for the purchase of power. On February, 2, 2001, a
California Superior Court judge denied SCE's motion for a preliminary
injunction, freeing the PX to liquidate the contracts and apply the proceeds to
amounts owed by SCE to the PX, subject to any claims or defenses by SCE. Later
that day, however, California Governor Gray Davis, acting under California's
Emergency Services Act, seized the contracts for the benefit of the state before
they could be sold by the PX. Under the act, the state must compensate SCE for
the reasonable value of the contracts. The PX has indicated that it will also
seek to recover the monies that SCE owes to the PX from any proceeds realized
from those contracts.
On January 19, 2001, American Home Assurance Company ("American Home") notified
SCE that due to SCE's failure to comply with its payment obligations to the PX,
the PX issued a demand to American Home on a $20 million pool performance bond.
American Home demanded payment from SCE by January 29, 2001 of $20 million under
an indemnity agreement between SCE and American Home. SCE has not yet paid the
amount demanded. SCE believes American Home is not obligated to pay the PX until
February 15, 2001. American Home has threatened to file suit against SCE to
enforce its rights under the indemnity agreement.
On January 18, 2001, Standard & Poor's further lowered its short-term credit
rating of EIX to "D" from "C" and its ratings on those series of SCE's debt
securities as to which payments have been missed to "D" from "CC." EIX has made
and expects to continue to make all payments on its securities and other
obligations as they become due. The reductions in EIX's ratings reflect the
problems at SCE. At January 31, 2001, EIX's cash and investments were $297
million. EIX's obligations on commercial paper coming due through March 15,
2001, which is the last maturity date, are $34.6 million. EIX has no other
obligations on indebtedness due during such period.
During the period since January 16, 2001, when SCE began suspending payments, no
payments have come due under its bank credit facilities; and neither EIX nor SCE
is in arrears on any payments to its bank lenders. However, SCE's failure to
make certain payments on other debt as described above constitutes an event of
default under both SCE's and EIX's credit facilities. The bank lenders have
agreed to forbear until February 13, 2001, subject to certain conditions, from
exercising remedies, including acceleration of borrowed amounts, against EIX or
SCE with respect to this and certain other related events of default under the
credit facilities.
SCE is continuing to seek to avoid bankruptcy. Subject to the outcome of
regulatory and legal proceedings, legislative enactments, and negotiations
regarding purchased power costs, SCE intends to pay all of its obligations after
a solution to the current energy and liquidity crisis has been reached that
allows SCE to recover past undercollected power procurement costs. EIX and SCE
cannot predict if or when such a solution may be achieved. SCE's actions in
suspending certain payments are intended to allow SCE to continue to operate its
business while efforts to solve the current crisis are underway. It is possible
that SCE could be forced into bankruptcy proceedings.
On February 1, 2001, Governor Davis signed into law Assembly Bill 1X, which was
passed by the California Legislature as an urgency measure during a special
session. The new law
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(1) authorizes the California Department of Water Resources (DWR) to enter into
contracts to purchase electric power and to sell power at cost, plus
administration and transmission costs, to retail end-use customers and to
municipal utilities that do not sell more power than they use; (2) authorizes
the DWR to issue revenue bonds to finance electricity purchases; (3)
appropriates $500 million from California's General Fund to purchase
electricity; (4) directs the California Public Utilities Commission (CPUC) to
determine the amount of a California Procurement Adjustment (CPA) as the
residual amount of a utility's generation component of its rates effective on
January 5, 2001, after deducting the costs of utility-owned generation,
qualifying facility contracts, existing bilateral contracts, and ancillary
services, and to determine the amount of the CPA that is allocable to the power
sold by the DWR which will be payable to the DWR when received by the utility
from retail end use customers; (5) directs the CPUC to set rates to cover
revenue requirements of the DWR's power purchasing program as advised by the
DWR; (6) provides that the CPUC shall not increase the electricity charges now
in effect for residential customers for existing baseline quantities or usage by
those customers of up to 130% of existing baseline quantities, until such time
as the DWR has recovered the costs of power it has procured for the utility's
retail end use customers; (7) directs the CPUC, at a time it determines, to
suspend, until the DWR stops procuring power for retail customers, the ability
of retail customers to acquire service from alternative providers of electricity
(additional legislation is expected to further address this issue); (8) ends the
DWR's authority to contract for power on January 2, 2003; and (9) repeals a
statute enacted last year allowing utilities to buy and sell power only through
the PX. As an urgency statute, the new law takes effect immediately. The new law
enables the DWR to contract on a longer-term basis to meet the energy needs of
California that are not met by the existing owned and contracted resources of
California utilities. The new law does not address the recovery of SCE's past
undercollected power procurement costs, which is the subject of another bill,
Assembly Bill 18X, that is in the early stages of consideration in a committee
of the California Assembly. EIX and SCE cannot predict what actions the
California Legislature may take on this issue.
SCE is continuing to pursue a lawsuit against the CPUC in federal district court
in Los Angeles seeking a ruling that SCE is entitled to just compensation for
and full recovery of its costs for wholesale purchases of electricity. A hearing
has been scheduled for February 12, 2001 to consider two motions filed by SCE: a
motion for a preliminary injunction ordering the CPUC to institute rates
sufficient to enable SCE to recover its past procurement costs, subject to
refund if necessary after the case is concluded, and a motion to specify
material facts without substantial controversy, i.e., to declare that SCE's
procurement costs between May 2000 and December 31, 2000 were reasonable. A
similar case filed by Pacific Gas and Electric Company (PG&E) has been
transferred to the federal district court in Los Angeles to be coordinated or
consolidated with SCE's case. Neither SCE nor EIX can predict whether or when a
favorable final judgment might be obtained in this legal action.
On January 31, 2001, the CPUC issued an interim decision taking emergency action
to adopt regulations to establish delivery and payment mechanisms relating to
the DWR's electric power purchases. The CPUC found that the DWR should sell
power directly to retail end-use customers as opposed to making direct or
indirect sales to the ISO or investor-owned utilities. The order requires the
utilities to deliver the power purchased by the DWR to retail end-use
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customers. The CPUC's decision establishes the DWR's right to receive certain
payments from retail end-use customers entitling the DWR to receive a percentage
of the amount each retail end-use customer currently is charged for electric
energy. The decision establishes a method by which the utilities shall collect
such portion which is to be held in trust for the DWR. If a shortfall exists
between the cost of the power purchased by the DWR for the utilities' customers
and revenue collected from customers by the utilities, the utilities shall be
obligated to pay the shortfall. The utilities are required to file advice
letters within 60 days to implement this provision in a manner that does not
jeopardize the utilities' financial stability. Under present conditions and
without satisfactory legislative and regulatory solutions that allow SCE to
recover wholesale power procurement costs, SCE expects that it will not be in a
position to implement this provision without jeopardizing its financial
stability. The interim decision also requires the utilities to file advice
letters within 30 days to establish cost-based rates for their retained
generation. In the light of the enactment into law of Assembly Bill 1X on
February 1, 2001, it is unclear what validity or effect the CPUC's interim
decision will have. SCE is seeking to have the interim decision reconsidered or
withdrawn by the CPUC.
On January 26, 2001, an assigned CPUC commissioner's ruling was issued in SCE's
rate stabilization plan proceeding. The ruling stated that the current first
phase of the proceeding will include (1) reviewing the results of the
previously-ordered independent audits of SCE and PG&E and determining whether
there is a financial necessity for other or additional relief for the utilities;
(2) considering the proposal of The Utility Reform Network (TURN) for
reconciliation of the utilities' transition revenue accounts, transition cost
balancing accounts, and generation memorandum accounts; and (3) considering
whether the current retail rate freeze has ended only on a prospective basis.
SCE and PG&E had argued that the first phase should include consideration of
whether the rate freeze ended as of an earlier date. The ruling stated that the
CPUC will address the issue of whether the utilities' power procurement costs
were reasonable and prudent in a later phase of the proceeding. The ruling
adopted a procedural schedule leading to an anticipated final CPUC decision on
March 27, 2001.
On January 29, 2001, the CPUC released the independent auditor's report of KPMG
LLC on the financial condition and solvency of SCE and its affiliates. The
report covers cash needs, credit relationships, energy cost scenarios, cost
containment initiatives, accounting mechanisms to track stranded cost recovery,
the TURN proposal, flow of funds between SCE and EIX, and earnings of SCE's
California affiliates.
On January 30, 2001, the CPUC released the agenda for its February 8, 2001
meeting. The agenda includes a proposed order instituting an investigation
and/or order to show cause whether the California investor-owned utilities,
including SCE, have complied with past CPUC decisions authorizing their holding
company formations and/or governing affiliate transactions, as well as
applicable statutes. The agenda states that the CPUC may also inquire whether
additional rules or changes are needed to address changing circumstances, and
that if the CPUC determines that there has been noncompliance, it may order
appropriate remedies, including but not limited to penalties and/or
modifications or additions to the conditions, or otherwise, of the relevant
decisions. According to the agenda, the CPUC may also impose other prospective
rules, conditions, or other remedies, as appropriate, that may result from the
inquiry. Although EIX
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and SCE do not know what actions, if any, may be taken by the CPUC regarding
holding companies, it is possible that the CPUC will seek to impose on EIX the
obligation to bear some or all of the undercollected costs that have been
suffered by SCE. Any such effort by the CPUC, if successful, would have a
material adverse effect on EIX.
General Re Financial Products Corp. (General Re), the counterparty on an
interest rate swap agreement entered into by SCE, has obtained an ex parte order
of attachment from a federal district court in New York covering an account of
SCE with a New York bank having a balance of about $1.6 million. General Re is
seeking payment of $8.8 million for early termination of the swap agreement. SCE
has filed a motion with the court to have the order of attachment vacated.
On January 31, 2001, SCE was provided with a copy of a complaint which it
understands has been filed against it, EIX and unnamed related parties in Orange
County Superior Court in California. The named plaintiff, who purports to sue as
a representative of customers who have placed deposits with SCE as security for
electric service, alleges that SCE has transferred $4.8 billion to EIX and the
other defendants over the last four years in violation of California's Uniform
Fraudulent Transfer Act and has engaged in unfair business practices in
violation of California law. The complaint seeks avoidance of the alleged
transfer of funds, restitution in the amount $4.8 billion, issuance of a writ of
attachment, and other relief. SCE and Edison International have yet to be served
with the complaint and cannot predict the outcome of this case.
In connection with SCE's failure to pay PX energy credits, one energy service
provider has filed a complaint with the CPUC demanding payment.
On February 3, 2001, Unit 3 at SCE's San Onofre Nuclear Generating Station
experienced a fire due to an electrical fault in the non-nuclear portion of the
plant. Based on an initial assessment of the damage, SCE expects that the plant
will remain out of service for at least several weeks. A detailed return to
service plan is under development pending completion of the damage assessment
and the determination of the duration for necessary repairs.
In the preceding discussion and elsewhere in this report, the words "expects,"
"believes," "anticipates," "projects," "forecasts," "intends," "predicts,"
"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 legislative enactments; the outcome of judicial proceedings regarding
recovery of costs and other matters; the outcome of state and federal regulatory
proceedings concerning wholesale and retail electric rates, accounting
mechanisms 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; 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) Not applicable
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.
SOUTHERN CALIFORNIA EDISON COMPANY
(Registrant)
KENNETH S. STEWART
---------------------------------------------
KENNETH S. STEWART
Assistant General Counsel and Assistant Secretary
February 5, 2001