California Legislature Adjourns; Edison Left Swinging in the Wind

The Legislature adjourned late Friday without acting on a plan to rescue Southern California Edison.
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As business seeks a sense of normalcy, developments in California's power crisis late Friday left the state's utilities and its investors in a state of uncertainty.

The California legislature adjourned its session without approving any major legislation related to the ongoing power crisis, including a plan to keep

Edison International's

(EIX:NYSE)

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Southern California Edison

subsidiary out of bankruptcy. While action aimed at helping the utility escape the burden of nearly $4 billion in debt was expected, the legislature could not agree on a comprehensive package for Gov. Gray Davis' approval.

A disappointed Davis said he will try to call a special session in October to force action on the Edison rescue. The next regular session does not convene until January. Davis reached a "Memorandum of Understanding" with Edison in late April, one he claimed would solve Edison's financial woes. At the time, however, pundits suggested legislative support was unlikely.

Edison International stock is likely to react negatively to inaction by the California legislature when markets reopen on Monday. The stock has gained nearly 50% since April when Davis and the utility agreed to the now-failed plan. Some of that gain will likely be lost as the fear of the inevitable conclusion grows.

Holding out hope, Edison Chairman and CEO John Bryson, endorsed Davis' plan for a special session. "Edison International endorses Governor Gray Davis' call for the State Legislature . . . to convene a third special session," he said in a statement. "Until that time, Edison will work closely with its creditors and ask for their continued support and forbearance as we move closer to a negotiated settlement. We continue to strongly believe that such a settlement is far preferable to bankruptcy for our customers, our company and our state's economy."

It isn't clear creditors will remain supportive as time continues to run on billions in unpaid bills and the uncertainty of state support grows. Sources tell

TheStreet.com

that a group of generators has quietly been talking to other Edison creditors about attempting to force the utility into bankruptcy.

Such action may be in the generators' best interests. Under the Governor's plan the state would assist Edison in issuing over $2.5 billion in bonds to pay off debt. However, the legislation would prohibit Edison from using the money to pay the amounts due to out-of-state power generators. Davis claims those generations over-charged the state for power, calling them "pirates". A plan requiring refunds for unreasonable power revenue in California is currently being considered by the Federal Energy Regulatory Commission.

If Edison filed for bankruptcy or was forced into bankruptcy by creditors it would follow the state's largest utility, Pacific Gas & Electric, a unit of

PG&E

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, which filed for bankruptcy protection in April.

The California legislature did not adjourn without any meaningful action, however, Late Friday, both chambers agreed to send $1 million from the California Victim Compensation fund to a similar program in New York to help victims of Tuesday's terror.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.