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 12, 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), is pursuing a lawsuit against
the California Public Utilities Commission (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. SCE brought 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. On February 12, 2001, the court denied SCE's motion for a preliminary
injunction. The court granted in part SCE's additional motion to specify certain
material facts without substantial controversy, but denied the remainder of the
motion and declined to declare at that time that SCE is entitled to recover the
amount of its undercollected costs. The court, however, accelerated the date of
a scheduling conference from March 19 to March 5, 2001, and indicated that an
early trial date would be set if the case were not resolved by summary judgment.
SCE intends to continue to seek expeditious action by the court on the merits of
SCE's case. Neither SCE nor EIX can predict whether or when a favorable final
judgment might be obtained in this legal action.
As of January 31, 2001, the amount of undercollections in SCE's transition
revenue account (TRA) was $5.465 billion. The TRA is a CPUC-authorized
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 January
31 TRA balance includes estimated costs and revenues accrued through January 31,
2001, except for emergency power purchases by the California Department of Water
Resources (CDWR) between January 19 and January 31, 2001. After January 18,
2001, SCE's rights to participate in the markets operated by the California
Power Exchange (PX) were suspended and the CDWR began making emergency power
purchases for customers of SCE, which purchases are not reflected in the January
31 TRA balance. However, under a previously disclosed interim CPUC decision that
SCE is challenging, SCE may be held financially responsible for purchases by the
CDWR during the period from January 19 through January 31, 2001. SCE estimates
that the additional undercollection in the TRA for such interim period with
respect to the CDWR's purchases could be approximately $100 million. In ongoing
proceedings before the CPUC, SCE is seeking clarification that SCE is not
financially responsible for costs incurred by the CDWR for purchasing power
between January 19, 2001 and January 31, 2001. In addition, as discussed below,
a February 14, 2001 order of the Federal Energy Regulatory Commission (FERC) may
affect SCE's financial responsibility for purchases made by the ISO in the
short-term market during such interim period; and in any event SCE takes the
position that it is not responsible for such purchases. SCE cannot predict the
outcome of any of these proceedings or issues.
As of January 31, 2001, SCE had overcollected balances of $603 million in
its transition cost balancing account (TCBA), representing recovery of stranded
costs, and $1.671 billion in its memorandum accounts relating to coal and
hydroelectric generating assets. As previously reported, the CPUC is considering
proposals by SCE and others in the rate stabilization proceeding and other
proceedings to reduce the amount of the undercollected TRA balance that
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could be recovered by SCE by offsetting against it the balances in the TCBA and
memorandum accounts.
SCE believes that the intent of Assembly Bill 1 (First Extraordinary Session)
(ABX1 1), enacted into law on February 1, 2001, was for the CDWR to assume full
responsibility for purchasing all power needed to serve the retail customers of
electric utilities, in excess of the output of generating plants owned by the
electric utilities and power delivered to the utilities under existing
contracts. The sponsor of ABX1 1, Assemblyman Fred Keely, recently stated that
the Legislature's clear intent was for CDWR to buy all power that the utilities
could not generate or did not have committed through long-term contracts. If
implemented in this manner, ABX1 1 would have the effect of preventing further
increases in the undercollected balance in SCE's TRA. However, the CDWR has
stated that it is only purchasing power that it considers to be reasonably
priced, leaving the ISO to purchase in the short-term market the additional
power necessary to meet system requirements. The ISO, in turn, takes the
position that it will charge SCE for the costs of power it purchases in this
manner. If SCE is responsible for the ISO's purchases of power for resale to
SCE's customers, the undercollected balance in SCE's TRA is continuing to grow.
Litigation among certain power generators, the ISO and the CDWR (to which SCE is
not a party) may result in rulings clarifying the CDWR's financial
responsibility for purchases of power; and in any event SCE takes the position
that SCE is not responsible for purchases of power by the CDWR or the ISO from
and after January 19, 2001. SCE cannot predict the outcome of any of these
proceedings or issues.
On February 14, 2001, the FERC issued an order addressing creditworthiness
tariff provisions proposed by the ISO and the PX. The order accepts the ISO's
proposal to modify its tariff to eliminate creditworthiness standards for SCE
and Pacific Gas and Electric Company (PG&E) with regard only to the utilities'
ability to access their own transmission facilities to deliver their resources
to their load, effective January 4, 2001. The FERC denied the ISO's proposal to
relax creditworthiness standards to the extent they affect third-party supplies,
and denied altogether the PX's proposal to relax the creditworthiness standards.
The FERC further states that a relaxation of the ISO's creditworthiness
standards as applied to third-party transactions would be acceptable if combined
with appropriate support from creditworthy counterparties, such as the CDWR.
Finally, the FERC directed the ISO to file modifications to its tariff in
compliance with the FERC's order within 15 days of February 14, 2001. SCE
believes the FERC order should be interpreted as precluding SCE from
participating in the ISO's markets because it does not currently meet the ISO's
creditworthiness standards and, therefore, SCE should not be held financially
responsible for power purchases by the ISO. However, the general counsel of the
ISO was quoted in news reports as saying that the FERC ruling upholds the ISO's
right to bill the utilities for the ISO's power purchases. It is likely that the
interpretation of the FERC order will be disputed, and SCE cannot predict the
outcome of such a dispute.
As previously reported, SCE has temporarily suspended payment of certain
obligations. SCE has not received a bill for payment of $296 million which was
expected to be due to the PX on February 15, 2001 for energy SCE purchased in
the PX forward markets during the period from January 1 through January 18,
2001; and SCE has not made this payment to the PX. This payment would have been
reduced by approximately $56 million due to SCE under block forward market
contracts for delivery in January. As previously reported, the disposition of
those
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contracts is under dispute, since the PX sought to liquidate the contracts
and the Governor of California subsequently commandeered them for the benefit of
the State. The January block forward market contracts and other contracts for
delivery in February through December 2001 are subject to various claims,
disputes, and lawsuits among SCE, the PX, the State of California and the
generators who agreed to provide the energy under the contracts. SCE cannot
predict the eventual disposition of these actions or the value, if any, that may
be realized by SCE for these contracts.
As of February 15, 2001, SCE has withheld payment of approximately $78 million
of PX energy credits for energy service providers. SCE estimates that
approximately $135 million of additional PX energy credits have accrued for
which the due date has not been determined.
At its regular meeting on February 15, 2001, the board of directors of SCE did
not declare the regular quarterly dividends that would have been paid on March
28, 2001 to holders of record as of March 5, 2001 of SCE's Cumulative Preferred
Stock, 4.32% Series ($25 par value), and $100 Cumulative Preferred Stock, 6.05%
Series and 6.45% Series ($100 par value). The aggregate amount of the dividends
at the specified rates for such series would have been about $3.2 million. As
previously reported, the board of directors previously decided not to declare
quarterly dividends on three other series of Cumulative Preferred Stock that
would have aggregated about $960,000 and been paid on February 28, 2001. So long
as any accumulated dividends on any series of SCE's Cumulative Preferred Stock
or $100 Cumulative Preferred Stock remain unpaid, SCE cannot declare or pay
future cash dividends on any series of such preferred stock or on SCE's common
stock, and SCE cannot repurchase any shares of its common stock.
On February 15, 2001, SCE paid an aggregate amount of about $15.9 million of
overdue interest, with additional interest thereon, on two series of SCE's
senior unsecured notes: the 6-3/8% Notes Due 2006 and the 7-5/8% Notes Due 2010.
The interest payments were originally due on January 16, 2001, and if not cured
within 30 days the failure to make those payments would have constituted an
event of default as to those series of notes. If an event of default had
occurred, the trustee or holders of 25% in principal amount of each series could
have declared the principal of the notes of that series to be immediately due
and payable. The outstanding principal amount of the two series of notes is $450
million. In addition, since January 16, 2001, SCE has paid interest of about
$792,000 on tax-exempt bonds previously issued to finance pollution control
facilities and has paid $22.7 million to repurchase such pollution control bonds
that could not be remarketed as required under their terms. Failure to make
those payments when due would have constituted events of defaults, without any
grace periods, which could have triggered an acceleration of the maturity of the
affected pollution control bonds. Moreover, because certain of the pollution
control bonds are secured by first mortgage bonds that were pledged at the same
time the corresponding pollution control bonds were issued, defaults could
trigger an acceleration of the entire outstanding $2.0 billion in principal
amount of SCE's first mortgage bonds. The principal amount of pollution control
bonds outstanding that SCE may still be required to repurchase is less than $2.0
million. SCE considers the interest rates and the terms to maturity of the notes
and bonds referenced above to be favorable. The payments that were made allow
SCE to retain the benefit of financing on these favorable terms.
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As previously reported, SCE's failure to make certain payments on its
outstanding notes and commercial paper constitutes an event of default under
both SCE's and EIX's credit facilities, even though both SCE and EIX are not in
arrears on any payments to the bank lenders under those facilities. The bank
lenders agreed to forbear until February 13, 2001, subject to certain
conditions, from exercising remedies, including acceleration of borrowed
amounts, against SCE or EIX with respect to this and certain other related
events which may be considered events of default under the credit facilities.
SCE and EIX are discussing with the bank lenders possible extensions of the
forbearance agreements. Neither SCE nor EIX can provide any assurance that the
forbearance agreements will be extended or that the bank lenders will not
declare the outstanding loans under the credit facilities to be immediately due
and payable or pursue other remedies against SCE or EIX.
As previously reported, American Home Assurance Company ("American Home")
demanded payment from SCE of $20 million under an indemnity agreement between
SCE and American Home relating to a pool performance bond issued by American
Home for the benefit of the PX. American Home threatened to file suit against
SCE to enforce its rights under the indemnity agreement. SCE has exercised its
right under the indemnity agreement to assume the defense of American Home
against claims arising from the pool performance bond. As required by the
indemnity agreement, SCE has agreed to deposit $20 million, plus a reasonable
amount for interest and expenses, in an account in trust to be available to
satisfy any judgment, should there be one, against American Home under the pool
performance bond.
As previously reported, General Re Financial Products Corp. (General Re), the
counterparty on an interest rate swap agreement entered into by SCE, 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. On February 8, 2001, the court granted SCE's motion to have the order
of attachment vacated. SCE anticipates that General Re will continue to pursue
its legal action for payment.
On February 9, 2001, the City of Long Beach filed a lawsuit in California
superior court against SCE and EIX alleging breach of a power purchase contract
under which the city sells power produced by a QF owned by the city to SCE. The
lawsuit seeks judgment for approximately $4.9 million, representing payments not
made by SCE for power purchased under the contract during November and December
2000.
Various creditors have announced their intentions to form creditors' committees
or other groups to explore options for receiving payment of obligations owed to
them, participate in discussions regarding solutions to the current energy and
liquidity crisis, and potentially pursue other actions or remedies. EIX and SCE
cannot predict what actions their creditors may take in order to recover amounts
they are owed.
SCE is continuing to meet and talk with governmental officials in efforts to
forge an agreement on means for recovery of SCE's undercollected power
procurement costs. California Governor Gray Davis, State Treasurer Phil
Angelides and members of the California Legislature have publicly discussed the
possibility of the State purchasing SCE's hydroelectric or transmission
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assets or receiving warrants covering shares of EIX's common stock, or some
combination thereof, in order to provide funds directly or through rate-financed
bonds for SCE to pay its debts. EIX and SCE executives have discussed these
ideas with Governor Davis and certain legislative leaders. The Energy Committee
and the Appropriations Committee of the State Senate have approved a bill that
would authorize the Governor to formulate a plan, through negotiations with the
investor-owned utilities, for the State to purchase the transmission facilities
of the investor-owned utilities in California. The bill would direct the
Governor to submit the plan to the Legislature for its subsequent adoption by
statute along with any necessary additional implementing legislation, which may
include the authority for the State to issue revenue bonds to finance the
acquisition of the transmission systems and the authority to contract with the
investor-owned utilities for ongoing operation and maintenance of the systems.
It has been reported in the press that on February 16, 2001, Governor Davis is
expected to announce a proposal that would include the purchase by the State of
the California of the utilities' transmission grid for market value, the
creation by the CPUC of a "dedicated rate component" that would appear on
customer bills, and the issuance by the utilities of bonds secured by the
dedicated rate component charges. Until the definitive proposal is released and
can be reviewed as a whole, neither EIX nor SCE can state whether the proposal
would be acceptable to either of them. Neither EIX nor SCE can provide any
assurance that the Governor, the Legislature or the CPUC will take timely and
adequate action to adopt and implement the Governor's proposal or any other
measures, or whether such proposal or measures ultimately will enable SCE to
meet its financial obligations and avoid bankruptcy.
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. The fire and electrical interruption resulted in a loss of lubricating
oil to the turbine generator system while it was still rotating. This caused
extensive damage to the turbine rotors, bearings and other components. SCE
expects that Unit 3 will return to service sometime between mid-May and mid-June
2001. Depending upon the return to service date, SCE anticipates that its lost
revenues under the currently-effective Incremental Cost Incentive Pricing plan
would be between $80 million and $100 million.
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 16, 2001