Southern California Edison settlement approved; QFs raise concerns

U.S. District Judge Ronald Lew approved the settlement agreement between state regulators and Southern California Edison Co. Friday, calling it “fair, adequate, and reasonable.”

After a controversy erupted over whether the nearly broke utility would honor contracts with small generators known as QFs, SCE Friday said it would “stand by the power purchase portion” of those contracts.

The QF’s signed 5-year, fixed-price contracts with SCE in June at 5.37à‚¢/kw-hr. The status of the contracts became an issue after Edison International announced the settlement Tuesday that would return the company to creditworthy status, and CEO John Bryson on a conference call said the contracts would be subject to renegotiation.

QFs, owed $1.2 billion in past due payments from SCE, had agreed to not to press their claims until a legislative solution to the utility’s financial crisis could be reached. SCE was on the brink of bankruptcy and was kept out of the bankruptcy court because many debtors agreed to allow the company to seek a legislative solution. The utility’s financial crisis resulted from a squeeze between fixed retail rates and soaring wholesale power costs.

With 3,000-4,000 Mw of power under contract to SCE, QFs play a crucial role in California’s energy mix. Late last year and into 2001, SCE stopped paying the QFs for power delivered when it was stricken with financial woes. Many QFs had to shut down or went off line helping to create conditions for blackouts in California.

After two special legislative sessions failed to pass a rescue package, the utility and state regulators reached a settlement that will allow SCE to pay its debts, restore its credit rating, and begin buying power on its own again.

In a Wednesday letter, Jan Smutny-Jones, executive director of the Independent Energy Producers, a trade association for generators in California, told Bryson the QFs expected SCE to honor the contracts.

“Edison already benefited from the 5.37à‚¢ agreement through the forbearance and the ‘standstill’ of various pending and potential litigation,” said Smutny-Jones. “We are not interested in renegotiating the agreement.”

John Weisgall of CalEnergy Co., a unit of MidAmerican Energy Holdings Co., sent SCE a letter Thursday demanding past payments and enforcement of the contracts. The demand was sent in response to Bryson’s comments concerning the contracts. Weisgall said he was waiting for a response from the utility Friday morning.

However, spokesman Gil Alexander confirmed SCE CEO Stephen Frank was in discussions with the QFs about the contracts. “Edison (SCE) intends to stand by the power purchase portion of those contracts,” said Alexander. “Other portions of the agreements as signed by 155 QFs concern timing for repayment of past due payments. That language is all on the table.”

The June contracts with QFs were tied to a legislative settlement to SCE’s financial crisis. New language will have to be drafted, he said.

Alexander said the agreement would allow SCE to pay all of its creditors $6.35 billion of debt as early as February 2002, if the power market conditions remain stable and bridge financing can be obtained.

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