California

Published Thursday, December 14, 2000

Power crisis building to blackouts, utility bankruptcy By Mike Taugher TIMES STAFF WRITER --------------------------------------------------------------------------------

Steady bleeding over the past six months has brought two of California's largest utilities near bankruptcy and created a crisis in confidence that nearly shut lights out Wednesday, officials said.

Earlier in the week, about a dozen companies that generate and market power told the state's grid operators they would not sell electricity in California's spot market without cash or some other financial assurance from Pacific Gas & Electric and other buyers, according to Gov. Gray Davis' office.

PG&E has been losing $1 million an hour, around the clock, to high wholesale electricity costs for which it has been unable to charge customers over the last six months. On Monday, its credit rating was downgraded for the second time in four months, along with Southern California Edison's, partly because state regulators have not acted on a PG&E request to raise rates.

Unwilling to bank on the utilities' credit, power-producing companies threatened to withhold power, leading to the prospect that grid operators would be unable to get enough electricity to prevent rolling blackouts. Davis and others intervened into a statewide power crisis that is looking increasingly dire.

Davis and U.S. Sen. Dianne Feinstein, D-Calif., said in a statement that high wholesale electricity prices "may very well bankrupt" PG&E and Edison.

Davis and Feinstein added that without strong regulatory intervention, "the lights throughout major areas of California may well go out."

State regulators also announced Wednesday they would reconsider PG&E's plan to raise rates next month.

Those developments, along with other moves by state and federal energy officials and politicians, were seen as good news by Lori R. Woodland, an analyst with Fitch Investors Service in Chicago, which downgraded the utilities' credit ratings Monday.

Without state and federal intervention, "solvency would have been an issue," Woodland said.

"What it says to me is that finally the people that matter are recognizing the problems and they are not willing to let these utilities fall apart," Woodland said. "That's a good sign."

Others were less optimistic.

"I haven't seen anything today that will address creditworthiness concerns," said Mark Palmer, a spokesman for Houston-based Enron Corp., which was among those companies listed by Davis as refusing to sell electricity in California without increased financial assurances.

Palmer said his company sells relatively little power into the spot market that was affected Wednesday, but added, "We may have had a conversation with them about creditworthiness."

"Compelling people to sell power, and trying to shift blame, doesn't do anything to solve California's problems," Palmer said.

Before May, things were going along fine for PG&E.

It was buying electricity for 3 cents or 4 cents a kilowatt-hour and selling it for a couple of pennies more.

Then things spiraled out of control.

The kilowatt-hour prices PG&E was paying were bumped up to 16.3 cents in May and hovered around that figure until last month. That is when prices skyrocketed again, so that over the past four weeks the utility has been paying an average of 27.9 cents for a kilowatt-hour.

The problems for PG&E is that it is prevented, for now, from charging more than 5.5 cents per kilowatt-hour.

The company is trying to lift that price cap, and it hopes to collect the $4.6 billion it has lost as of Nov. 30 to unreimbursable high wholesale costs from its 4.6 million customers in Northern and Central California.

Although those figures average out to $1,000 per customer that PG&E hopes to collect for electricity that has already been used, residential customers would pay less than that because businesses use about two-thirds of the utility's electricity.

PG&E spokesman Ron Low said the company continues to have the credit needed to buy power.

Asked about the prospect of bankruptcy, Low said, "That is not a question that we can answer. The financial institutions that lend us money will continue to do so as long as we are a prudent investment."

Part of the rationale Fitch used in downgrading the utilities' credit ratings Monday was that state Public Utilities Commission President Loretta Lynch just last Thursday halted regulators' work on a plan by PG&E to raise rates in January.

http://www.contracostatimes.com/news/california/stories/pge_20001214.htm

-- Martin Thompson (mthom1927@aol.com), December 14, 2000

Answers

The following is my not so humble opinion.

This reminds me of the 1973 gas crunch.

There was no gas to be had at the 'fixed' price, but I'm sure the dino juice would of kept flowing if the price was higher - just like now. Have you noticed there is no 25¢ gas to be found anywhere but you can fill the tank for something shy of $2 all day long.

These utilities should be able to pass the price along, or start shutting off loads. They just say: 'Hey there is no more juice at the 5.5¢ price level' and you want juice pay up or fix the system - we're playing by the rules you folks set.

No business is going to stay afloat if it keeps giving its product away! Are these businesses in trouble? I don't know, but the citizens sure are.

As far as the cost of the power, somebody should be going to jail over this. We need to start nailing these executives for fraudulent doings.

-- (perry@ofuzzy1.com), December 14, 2000.

Utility finances Filed: 12/14/2000

By MICHAEL LIEDTKE

AP Business Writer

SAN FRANCISCO (AP) — With California's two largest utilities in an $8 billion hole that keeps getting deeper by the day, the state's energy crisis is starting to become as much about a money shortage as inadequate power supplies.

Although utilities said they remained solvent as of Wednesday, they acknowledged bankruptcy is a possibility if their lenders decide they won't be able to generate enough revenue to pay the huge bills the utilities have rung up buying expensive electricity during the last seven months.

"We continue to have the ability to make power purchases on behalf of our customers," said Pacific Gas & Electric Corp. spokesman Ron Low. "But we cannot go on indefinitely borrowing money to pay for our customers' electricity."

San Francisco-based PG&E, which runs Northern California's primary utility, has paid $4.6 billion more for electricity than it has collected from its customers since May.

The financial imbalance, created by a retail rate freeze imposed as part of California's deregulated energy market, has been getting worse this month, partly because a freeze on wholesale electricity prices was lifted last weekend.

Electricity prices are averaging $330 per megawatt hour so far this month, 11 times higher than December 1999, said Southern California Edison spokesman Gil Alexander. Edison has paid about $3.5 billion more for electricity than it has collected from its customers.

"The ability to fulfill the electricity needs of California has never been more threatened," Edison International Chairman John Bryson said in a statement Wednesday.

Edison is scrambling to raise its credit lines by an additional $1 billion. If it can't raise more money, Bryson said the company will consider "drastic measures," including rationing electricity.

Power suppliers are getting nervous about the financial stability of the cash-strapped utilities. About a dozen suppliers declined to sell energy to California Wednesday unless they received cash on delivery — a sign they are worried about a bankruptcy.

The financial markets that have been footing the utilities' debts are starting to lose their patience, too. Another sign of investors' exasperation surfaced Wednesday when Standard & Poor's placed PG&E and Edison on its credit watch list "with negative implications."

The action signals that the rating agency is poised to downgrade the utilities investment grade, a move that would make it even more difficult to raise money.

S&P said it still expects government regulators to come up with a solution that will ease the financial crunch facing the utilities.

Other analysts aren't so sure.

"This is one of the most serious situations I've seen from a financial standpoint. Nobody's crying wolf here. This is a real problem," said Douglas Fischer, who follows the utilities for A.G. Edwards & Sons in St. Louis.

PG&E's stock dipped 12 cents Wednesday to close at $21.19, a 35 percent drop from its 52-week high. Edison's stock was unchanged Wednesday at $18.56, a 38 percent decline from its 52-week high.

Consumer activists suspect the utilities are engaging in a bit of financial gamesmanship to pressure regulators into allowing them to bypass the electricity rate freeze and pass their bills along to their customers.

The utilities have been battling unsuccessfully for months to win approval for rate increases. The California Public Utilities Commission Wednesday said it will consider the latest requests for electricity rate increases in a Dec. 21 hearing.

But because the utilities pushed for deregulation three years ago, the activists believe the companies should be forced to play by the rules that they accepted, no matter what happens.

"It's their mess — they have to clean up," said Mindy Spatt, a spokeswoman for The Utility Reform Network in San Francisco

http://www.bakersfield.com/oil/Story/258129p-242945c.html

-- Martin Thompson (mthom1927@aol.com), December 14, 2000.

As tough as this may be, I hope that Californians will be able to find a free-market solution to their energy problems, rather than running with tails-between-legs back to the government for re- regulation. Such a capitulation will only defer the problem for a future generation to solve.

There is so much "new" technology out there now: what about using over-unity devices, Scalar physics, Tesla's patents, or just the plain old sun and wind, which we use with much success in our own home? If the government is to get involved in any way, it should be only to vigorously encourage further development of alternative energy technologies, in spite of pressures to the contrary from vested interests of status-quo technologies, which are long outdated.

-- Shelby Cabirac (mcabirac@netzero.net), December 15, 2000.

I think there is a big problem with the govt stats that show inflation rates much lower than they really are. Energy prices have been goin up for months (possibly over a year) and the whole thing is left out of the picture. The mess that these dishonest stats cause is completely evident in the situation in Cal and other states now.

Real people know that we have had increasing infation for quite a while and it is now showing up in earnings warnings from corps who have been able, up 'til now, to hide the problem from investors by using their "investments" to shore up the balance sheet. Those investments and in fact the whole stock market is where inflation has been "hiding" for at least 4 years IMHO. This "asset inflation" is now plain for all to see. The energy crisis we now face is a result of interference in the free market and continuing interference will only make the problem worse now and unimaginable in the future.

Whew! glad I got that off my chest.

-- poconojo (jberman478@aol.com), December 15, 2000.

A Calgary company is busily developing a home fuel cell, soon preparing for mass production. Shelby, I agree with you that if a basic infrastructure service is to be run as a profit-making enterprise, then the consumer (especially residential and small business) needs more alternatives. The price increases for profit will certainly spur their growth.

-- Rachel Gibson (rgibson@hotmail.com), December 15, 2000.