Assignment of Proceeding
Kevin P. Coughlan is the assigned Examiner in this proceeding.
Findings of Fact
1. SoCal Edison, a California corporation, is a public utility subject to the jurisdiction of this Commission.
2. SoCal Edison needs external funds for the purposes set forth in the Application.
3. The proposed debt and equity securities, and guarantees in respect of the issuance thereof are for proper purposes and not adverse to the public interest.
4. Authorizing SoCal Edison to determine the precise amount and timing of each debt issue, the market in and method by which each debt issue is effected, price, interest rate (which may be fixed, adjustable, variable or set by auction or remarketing procedures), and other material terms and provisions of each debt issue and of any Debt Securities related thereto in the manner and subject to the limitations set forth in the Application, would not be adverse to the public interest.
5. SoCal Edison's proposal to use a special purpose entity for the purpose of issuing trust preferred securities and to unconditionally guarantee or otherwise secure the entity's payment obligations would be for proper purposes and could offer financial advantages to SoCal Edison and its ratepayers.
6. Savings resulting from the difference in costs between raising capital through trust preferred securities and a traditional preferred stock issuance will be passed to ratepayers in the annual revisions of SoCal Edison's authorized cost of capital.
7. The special purpose entity described in the Application would be under SoCal Edison's ownership and control and would engage only in activities in support of its operations.
8. Authorizing SoCal Edison to encumber utility assets in the event that such encumbrance will be required to secure debt securities is for proper purposes and is not adverse to the public interest.
9. The Commission does not by this decision determine that the SoCal Edison's construction budget, cash requirements forecast, and capital ratios presented herein are necessary or reasonable for ratemaking purposes. These issues are normally tested in general rate case or cost of capital proceedings.
10. The use of credit enhancements, interest rate caps, collars and swaps in appropriate circumstances are not adverse to the public interest. These features are tools which may improve the terms and conditions of debt issues and may lower overall cost of money for the benefit of ratepayers.
11. The recorded capital structure ratios are higher than authorized capital ratios for the same period. SoCal Edison should provide a reconciliation of the difference in future financing applications.
12. Section 1904(b) states that there is no fee on such portion of any issue that will be used to guarantee, take over, refund, discharge, or retire any stock, bond, note or other evidence of indebtedness on which a fee has been paid to the Commission.
13. The Application shows that SoCal Edison plans to use $1,250,000,000 of the requested $2.0 billion Debt Securities to refinance existing debts; and $148,080,000 of the requested issuance of $700,000,000 Preferred Stock for stock redemption purposes.
14. SoCal Edison requests several exemptions from the Competitive Bidding Rule. The requested exemptions are identified in the body of this decision. The Commission granted similar exemptions in D.03-06-011 and D.03-12-004.
15. SoCal Edison represents that granting the requested exemptions from the Competitive Bidding Rule will help SoCal Edison issue debt on terms that are favorable to the utility and its ratepayers.
16. As of May 2005, SoCal Edison's senior secured bond rating is "BBB+".
17. Notice of the filing of the Application and the Amended Application appeared on the Commission's Daily Calendar of February 23, 2005 and May 18, 2005 respectively. There is no known opposition to this Application, and the authority requested should be granted.
Conclusions of Law
1. A public hearing is not necessary.
2. The Application should be granted to the extent set forth in the order that follows.
3. Issuing bonds, notes, or guarantees or pledging assets on behalf of a subsidiary or affiliate is allowable under § 701.5.
4. This authorization is not a finding of the value of SoCal Edison's stock or property, nor does it indicate the amounts to be included in ratemaking procedures.
5. Res. F-616 allows exemption from the Competitive Bidding Rule for: (1) debt issues in excess of $200 million, (2) variable rate debt, structured transactions, bank borrowings, and other securities privately placed with specific lenders.
6. Certain bidding procedures and deviations from the Competitive Bidding Rule are permitted in Res. F-616.
7. SoCal Edison's request for the exemptions from the Competitive Bidding Rule described in the body of this decision is reasonable and should be granted.
8. SoCal Edison should pay the fee determined in accordance with § 1904(b).
9. The following order should be effective on the date of signature.
O R D E R
IT IS ORDERED that:
1. On or after the effective date of this order, Southern California Edison Company (SoCal Edison), upon terms and conditions substantially consistent with those set forth or contemplated in Application 05-02-018, as amended (Application) is authorized to:
a. Issue, sell, and deliver one or more series of debt securities, including but not limited to first and refunding mortgage bonds, debt secured by a pledge of its accounts receivable, debentures, notes, preferred securities, overseas indebtedness, foreign currency denominated securities, commercial paper, extendible commercial notes, other floating or variable rate debt, credit or loan agreements, and other evidences of indebtedness (Debt Securities) in an aggregate principal amount not to exceed $2.0 billion;
b. Guaranty the securities of a regulated subsidiary or affiliate of SoCal Edison, the proceeds of which may be loaned to SoCal Edison or to another regulated subsidiary or affiliate of SoCal Edison, and/or to guaranty or otherwise secure the obligations of one or more governmental entities in respect of their issuance of Debt Securities for pollution control and sanitary and solid waste disposal, or other eligible facilities;
c. Determine the precise amount and timing of each debt financing, the market in, and method by, which each is issued, the principal amounts and maturities and, if any, the terms of redemption, repurchase security, other security, subordination and conversion provisions, rights, warrants, and the other terms and provisions and the price and interest rate (which may be fixed, adjustable, variable, or set by auction, remarketing, or other rate setting procedures) of the borrowings and of any securities related thereto or issuable in connection therewith in the manner set forth in the Application;
d. Renew and/or refund commercial paper, extendible commercial notes and other floating or variable rate debt securities, so that the combined term of the obligations may exceed twelve months without the need for further authorization from the Commission;
e. Arrange credit agreements or other credit facilities as may be necessary for the purpose of issuing Debt Securities, and to modify such credit facilities in the manner set forth in the Application without further authorization from the Commission;
f. Execute and deliver an indenture or supplemental indenture in connection with any issue of Debt Securities, and to assign, mortgage, or encumber utility property in connection with the issuance and sale of Debt Securities;
g. Pledge or otherwise dispose of or encumber its accounts receivable in connection with the issuance and sale of Debt Securities;
h. Issue, sell, and deliver Debt Securities by public offering or private placement; and
i. Issue, sell and deliver one or more series of Cumulative Preferred Stock--$25 Par Value, $100 Cumulative Preferred Stock--$100 Par Value, and Preference Stock, or any combination thereof (Preferred Stock), as authorized in SoCal Edison's Articles of Incorporation in an aggregate amount of up to $700 million par or stated value.
2. Trust preferred securities transactions shall be subject to the following conditions:
a. SoCal Edison's subsidiary shall be created solely for the purpose of issuing securities to the public or privately to support SoCal Edison's operations or service;
b. SoCal Edison shall have 100% ownership and control of the subsidiary;
c. The activities of the subsidiary shall be subject to federal or state securities regulation and to the regulation of the commission through its oversight of SoCal Edison's financing activities.
d. Savings resulting from the difference in costs between raising capital through trust preferred securities and a traditional Preferred Stock issuance will be passed to ratepayers in the annual revisions of SoCal Edison's authorized cost of capital.
3. SoCal Edison may enter into one or more contracts for the purpose of managing interest rates risk. Such contracts could take a number of forms including interest rate cap agreements, interest rate floor agreements, interest rate collar agreements and interest rate swap agreements. SoCal Edison may also enter into contracts to reduce the risk of increased interest rates associated with planned financings. Such contracts could include hedging future fixed rate debt issuances such as Treasury locks, caps and collar agreements. This authority shall not to be considered as separate debt for purposes of calculating the remaining financing authorization granted by this order.
4. SoCal Edison is limited to entering into swap and hedging transactions aggregating no more than 20% of its total long-term debt outstanding.
5. SoCal Edison shall limit its counterparty portfolio exposure as follows:
Counterparty Rating Limitation
AAA no limitation
AA no limitation
A no more than 60% of the total
amount of counterparty
exposure
BBB no more than 30% of the total
amount of counterparty
exposure
(To be based on the lower rating, if applicable counterparty
has a split rating).
6. SoCal Edison shall separately report all interest income and expense arising from all swaps and hedging transactions in its report to the Commission.
7. If SoCal Edison elects to terminate a swap or hedging transaction before the original maturity or the swap or hedging partner terminates the agreement, all costs associated with the termination shall be subject to review in a ratemaking proceeding.
8. SoCal Edison shall make available, within 30 days of request:
(i) a report that would include a summary of the swap or hedge transaction, including but not limited to the term, costs of the transaction (fees or other expenses), dollar amount involved, and SoCal Edison's rationale for the transaction and (ii) SoCal Edison's estimated costs for the "alternative" or unhedged transaction.
9. SoCal Edison shall enter into interest rate swap and hedging contracts only when it is expected that such arrangements will provide an overall cost of money lower than that available through the issuance of alternate debt securities.
10. SoCal Edison shall file a new application and pay the corresponding fee if it uses more than $750,000,000 of the total authorized Debt Securities and more than $551,920,000 of the total authorized Preferred Stock in this order for acquisition of property or for the construction, completion, extension or improvement of facilities.
11. SoCal Edison's debt issues with principal amounts greater than $200 million, variable rate debt securities, and negotiated financing transactions are exempt from the requirements of the Commission's Competitive Bidding Rule. When SoCal Edison's bond rating rises to "A", all issues of fixed-rate bonds and debentures (other than tax-exempt securities) over $20 million but not greater than $200 million are subject to the Competitive Bidding Rule.
12. Consistent with the modifications to the Competitive Bidding Rule set forth in Resolution No. F-616, SoCal Edison is authorized to:
a. Shorten the period of time between the issuance of an invitation for bids and the scheduled receipt of bits to a period which is the shortest time reasonably required in order to obtain a sufficient number of bids from underwriters or purchasers or groups thereof (which time period may be as short as a few hours);
b. Accelerate, postpone or cancel the scheduled date and time for the receipt of bids;
c. Reject all bids submitted, request the resubmission of bids, reschedule subsequent receipt of bids, and vary the amount, terms, and conditions of the debt securities submitted for bids; and
d. Waive the requirement for newspaper publication of the above items.
13. On or before the 25th day of the month following each quarter, SoCal Edison shall file the reports required by General Order No. Series 24-B (including the terms and conditions of securities issued). SoCal Edison shall maintain or bring down the aggregate amount of short-term borrowings to 5% of the other capital (long-term debt, preferred stock and common stock) then outstanding at least once every twelve months, and shall file an annual report each year in compliance with the requirement, forty five days after the end of each year, starting in 2005. The report shall be sent to the Water Division's Audit and Compliance Branch.
14. The authority granted by this order shall become effective when SoCal Edison pays $656,960 as required by Pub. Util. Code § 1904(b).
15. The Application is granted as set forth above.
16. Application 05-02-018 is closed.
This order is effective today.
Dated August 25, 2005, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
SUSAN P. KENNEDY
DIAN M. GRUENEICH
JOHN A. BOHN
Commissioners
