Edison Can't Cash In on Increased Demand for Power.

With its rates frozen, Edison International is feeling the heat.

The Rosemead-based utility can't raise the prices it charges customers for electric power, despite exploding demand, until it pays off the billions of dollars in debt on alternative energy investments, or March 3.1, 2002, whichever comes first.

Meanwhile, legislators in Sacramento are talking about further reining in California utilities, cutting rates and effectively ending the deregulation movement.

As a result, Edison's stock has been languishing. As of late last week, it was trading at around $21 a share, pretty much unchanged all summer except for a slight dip to $19 in July. In February, the stock had risen as high as $30 a share before plummeting to about $15 after a disappointing earnings report.

Some analysts say Edison has a perception problem with investors.

"(Investors wonder,) 'How is it going to make money when they have a rate freeze and they're selling plants and they have to buy back energy?'" said Joan Goodman, an analyst at the Pershing division of Donaldson Lufkin & Jenrette Securities Corp.

The spike in demand has also been a turnoff, for investors.

"Edison International, in the minds of people, is a distributor in a shortage, which is a difficult time," said Danielle Seitz, an analyst with Warburg Dillon Read LLC.

Edison is undervalued relative to its peers in the industry. Its stock is trading at a 20 percent discount to the average price-earnings ratio of the industry.

Edison has been selling plants to meet the requirements of deregulation, which prohibits utilities from owning both power generation and distribution operations.

Rates have been frozen ever since the beginning of the four-year transition to deregulation, which is about halfway through for Edison. At the same time, demand is much higher than projected a couple of years ago because the economy is booming.

"Edison's rates are frozen, so when the company has to purchase extra generation, they swallow the costs," Goodman said.

Gil Alexander, spokesman for Edison, said the selling of power plants doesn't affect the company's ability to make a profit, even if it has fewer assets. But price spikes on the wholesale level adversely impact utilities such as Edison.

In the mid-1990s, nobody foresaw this summer's crunch, especially when there was 20 percent excess generating capacity statewide in 1996. Utilities were wary about adding capacity because of uncertainty about deregulation. That didn't matter during the recession of the early to mid-1990s But since the economy has come roaring back, demand has soared. Adding to the problem are the widespread use of computers and other power-sucking technologies, a hotter-than-normal summer, and the absence of new power plant construction.