In the News: Recent Developments

April 20, 2001

Edison Shares Fall Amid Concern Over Rescue Pact

(Sacramento, California) Edison International’s shares fell 14 percent this week amid mounting concern the rescue plan for the owner of California’s second-biggest utility may not win legislative and regulatory approval.

California legislators are voicing concerns about portions of the agreement Edison reached this month with Governor Gray Davis. Edison executives say the agreement must be implemented without major changes or they will abandon the pact.

Edison agreed to sell power lines to the state for

$2.76 billion, and the right to issue about $2 billion in bonds. The pact would allow its utility, Southern California Edison, to repay billions in power-buying debt. PG&E Corp.’s Pacific Gas & Electric, the state’s biggest utility, filed for bankruptcy after abandoning rescue talks.

“People are coming to the recognition that there is a lot of risk in getting this fully approved,” said Paul Fremont, an electric utilities analyst at Jeffries & Co. “The more time goes by, the more pressure there will be on Edison by its creditors.”

Edison’s shares fell 66 cents, or 6 percent, to $10.32 today. The stock has fallen 34 percent this year. Shares of PG&E Corp., owner of Pacific Gas & Electric, the state’s No. 1 utility, rose 17 cents to $8.90 in today’s trading. They’ve fallen 56 percent this year.

`Lot of Questions’

The agreement was designed to keep Edison’s utility subsidiary, Southern California Edison, out of bankruptcy. State legislators want to examine the agreement closely and may seek changes before approving it.

“There are a lot of questions” about the plan, Democratic Senator Sheila Kuehl said following a briefing by Davis this week. Senate President Pro Tem John Burton says the Legislature will hold “thorough” hearings before ratifying the agreement.

Southern California Edison’s debts may be better resolved in bankruptcy along with Pacific Gas & Electric, Senate Utilities Committee Chairwoman Debra Bowen said.

If the Legislature seeks major changes, Edison may abandon the agreement, and its utility could file or be forced into bankruptcy, company executives said. Edison also owns non-utility assets, including power plants and energy exploration units.

“It’s the agreement or bankruptcy,” Edison Senior Vice President Bob Foster said today. “We think the essence of it has to stay as it is.”

The Legislature eventually will approve an agreement acceptable to all sides, Davis aides said.

“We’re at the early stages, and to make projections about this is premature,” said Joseph Fichera, president of New York investment firm Saber Partners LLC, who is Davis’s lead negotiator with Edison. “Everyone’s jumping the gun here.”

Edison executives and analysts say that the longer the agreement is unresolved, the greater the risk that creditors will force the utility into bankruptcy. Edison’s credit lines expire in May and the forbearance agreements Edison and its utility, Southern California Edison, have with their banks ends April 28.

–David Ward in San Francisco, (415) 519-2995, and Liz Goldenberg in New York, (212) 893-3940, with reporting by Laura Litvan in Sacramento and Daniel Taub in Los Angeles, through the Princeton newsroom, (609) 279-4000/pjm/alp/dfr

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