Thursday, December 14, 2000

California governor urged to seize beleaguered electric utilities

JOHN HOWARD

SACRAMENTO, Calif. -- With wholesale electricity prices soaring, Wall Street is worried about the health of California's major utilities and a consumer group is urging the state to take control of its strapped $20 billion electricity industry.

The system has been struggling to meet demand for days and officials warned Wednesday afternoon of the likelihood of a Stage 3 alert with rotating blackouts.

On Monday, the credit rating firm Fitch IBCA lowered the short- and long-term ratings of Pacific Gas & Electric and Southern California Edison Co. On Tuesday, PG&E spokesman Greg Pruett said Standard and Poor's and Moody's also were reviewing the utility's credit rating. In Washington, the Federal Energy Regulatory Commission said it would announce a long-awaited fix for California's electricity market on Friday. It's a decision that can't come soon enough for the utilities, which have watched wholesale power prices climb from $250 per megawatt hour on Friday to $1,182 by midday Tuesday.

Last year at this time, prices ranged from $22 to $45 per megawatt hour. The 1996 deregulation law sought to open California's electricity industry to competition, and it prompted the three big utilities to sell power plants and buy power on the open market by March 2002. But PG&E and SoCal Edison have absorbed billions in losses because of skyrocketing wholesale prices and a rate freeze that prevents them from passing on those costs. They want the freeze lifted.

The Santa Monica-based Foundation for Taxpayer and Consumer Rights this week urged Gov. Gray Davis to seize the electricity system and force idled power plants to increase supplies.

"Some of these power plants are sending power out of the state and it's got to be stopped," foundation president Harvey Rosenfield said. "He [Davis] has the authority under the state's health and safety laws to seize them. That's what eminent domain is all about." But Tom Williams, a spokesman for Duke Energy, said most of the energy shipped out of state was covered by contracts signed at least a year ago.

"We don't like having our property seized. We have four power plants and they generate 3,150 megawatts, and our shareholders invested $611 million in them," Williams said.

This article was published on Thursday,

December 14, 2000

-- Cave Man (caves@are.us), December 14, 2000

Answers

http://www.ar demgaz.com/today/biz/D2bpower14.html

-- Cave Man (caves@are.us), December 14, 2000.

A money shortage compounds California's energy shortage 8.59 p.m. ET (0159 GMT) December 13, 2000

SAN FRANCISCO — 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 act on the latest requests for financial help in aid 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.foxmarketwire.com/wires/1213/f_ap_1213_56.sml

-- Cave Man (caves@are.us), December 14, 2000.

The question is: what capacity could be added by bring the downed plants back online? Are personnel available to do this?

Retail rate increases are needed. Companies have to make a profit. Bankrupcy/shutdowns will only make things worse.

-- Johnn Littmann (littmannj@aol.com), December 14, 2000.

John,

Yes companies do have to make a profit but a power company is in a different position. They have us by the short hairs. They have arbitrarily shut down 25% of their plants, and sold much of the power they generate to other states for cheaper than they can buy it for their customers in CA.

PG&E has been trying to bludgeon the California citizens into paying for their (PG&Es) poor choices. A company should make a profit. Yet many don't. If a local dairy shut down 25% of its farms at once. Sold 1/3 of their milk out of town and then had to buy milk from somewhere else at 5 times what they could produce it for - then they would go out of business plain and simple. Because how many people would spend $10 or more for a gallon of milk when the going price is $3.00?

They want to raise rates by 300% or more! If PG&E cannot provide power at reasonable rates then we need to do something and soon. Because there are thousands and thousands of struggling families and elderly living at or below the poverty line that could not possibly afford a 300% rate increase. PG&E is obviously imcompetant to run their own business - unless this is just all a ploy to get us to pay higher rates. Then they are not incompetant, they are crooks. Take your pick.

-- riversoma (riversoma@aol.com), December 14, 2000.

http://www0.mercurycenter.com/premium/local/docs/bankrupt14tk.htm

Published Thursday, Dec. 14, 2000, in the San Jose Mercury News

Consumers may have to pay billions if utilities declare bankruptcy

BY STEVE JOHNSON, MARK GLADSTONE AND JOHN WOOLFOLK

Mercury News

Wednesday's fast-emerging concern about the financial health of the state's major utility firms is prompting an alarming possibility: that taxpayers will get stuck paying the companies' multibillion- dollar debts.

That speculation took off at a fever pitch after Gov. Gray Davis and U.S. Sen. Dianne Feinstein, D-Calif., said Pacific Gas & Electric Co. and Southern California Edison were near bankruptcy. Some observers said the companies' estimated debts of $8 billion are so huge that they may need government money to stay afloat.

``It's clear, either the ratepayers or taxpayers are going to pay,'' said Assemblyman Rod Wright, D-Los Angeles, who chairs the Assembly Utilities Committee. ``Somebody will have to pay the cost, since no one is prepared to see the state go dark.''

But others suggested the companies may be exaggerating their troubles in hopes of being bailed out after a year in which they paid high prices for power because of ongoing shortages. They said the companies' financial footing appears reasonably solid so far.

``I think it's an effort to play the violin'' in order to get a financial bailout from consumers or taxpayers, said Doug Heller, of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

Before Wednesday's announcement by Davis that some energy suppliers weren't selling power in California for fear of not getting paid by the utilities, the idea that government might have to help buy that juice seemed remote, said Steven Maviglio, Davis' press secretary.

Now, ``anything is possible,'' he said. ``So far on this electricity dilemma, nothing is beyond the realm of possibility. We have to look at everything.''

Utilities could run out of cash soon

Officials at PG&E and Southern California Edison declined to discuss their financial situation in detail Wednesday. But California Public Utilities Commissioner Carl Wood said he also believes bankruptcy could be a likelihood for both companies soon.

``We're looking at this possibility occurring in the next few weeks -- the utilities running out of cash and credit to purchase electricity, and having to default on their obligations and go into bankruptcy,'' he said.

Wood added that having the government provide financial help to those companies ``could happen,'' but he said such a step would require legislative action, which might take months. Wood said the commission plans to take up the question of PG&E and Southern California Edison's finances on Dec. 21, but was unsure what type of action the regulatory agency might take.

Some question just how dire the situation actually is.

Neither PG&E nor Edison International, the parent corporation of Southern California Edison, exhibits the traditional warning signs of a utility near bankruptcy.

So far, neither has failed to pay back any debts, and the major credit agencies generally rate the companies' ability to repay borrowed money as ``strong.'' Moreover, they continue to pay hundreds of millions of dollars a year in cash dividends to their stockholders. Edison actually raised its dividend payout in March, and PG&E has kept the same rate since 1996. A utility in serious financial trouble typically cuts its dividend to conserve cash.

``They're not close to bankruptcy,'' said Heller of the Foundation for Taxpayer and Consumer Rights.

Others have pointed out that even though PG&E may be having problems, its parent company, PG&E Corp., is financially well off. Besides, even if PG&E is in financial straits, critics of the utility firms contend that they should have known what they were getting into when they helped design the deregulation law.

As state assemblyman Fred Keeley, D-Santa Cruz, put it, ``it's not the role of the Legislature to bail out people who made a deal they can no longer live with.''

Some people think it would be especially unfair to foist $8 billion of utility-company red ink onto the thousands of Californians who aren't their customers. Presumably, those consumers would wind up paying twice for power -- once to their own electricity supplier and once more to assist the major utilities.

Utility-company officials blame most of their financial troubles on what they characterize as greedy power suppliers, who have been charging extraordinarily high wholesale electricity prices since last summer. But the problems date back to March 31, 1998, when the sale of electricity was officially opened up to competition under the deregulation law that the Legislature passed two years earlier.

That law encouraged the utilities to sell off most of their own power plants and begin buying electricity from independent generators. Moreover, it froze the retail rates that utility companies could charge their customers. Neither of these changes was a big concern to utility executives at the time, because the frozen rate covered the cost of the power they bought and also gave them a little extra to pay off their old power-plant debts.

Debts incurred to pay for price jump

This year, the price of power soared well beyond what the company is able to recoup from consumers under the freeze. Last year, the average price of one megawatt hour, which is enough to power 1,000 homes for an hour, was $31. This week, with electricity in severely short supply, the price jumped well past $1,000.

Southern California Edison claims it has incurred more than $3.5 billion in unanticipated electricity costs this year, while PG&E put its unanticipated costs at $4.6 billion as of Nov. 30. PG&E officials have said that amounts to at least $1 million an hour in bills with which it is stuck.

Although both utilities are seeking permission to pass those bills on to consumers, there has been great reluctance among government officials to let them do that. But if the companies declare bankruptcy and claim they no longer can buy power, state officials say they might face considerable pressure to have the government finance part of all or those electricity costs -- at least until the utilities recover financially.

Staff writer Vindu Goel contributed to this report.

-- (in@energy.news), December 14, 2000.

The province of Ontario has just started down the electricity privitization route. It makes me shudder to think that what is befalling California currently may lie in store for us a couple of years down the road.

I am a person with fairly fiscally conservative views, BUT there is a real argument that certain essential infrastructure providers should not be privitized.

An example of privitization gone horribly wrong is the passenger rail network in Britain. Until the mid-90s there was one operator, British Rail. Now it is divided between "Railtrack" which owns the tracks and the many train operating companies. Service is now appalling (if it doesn't kill you; there have been 3 major accidents in the last 3 years) and making connections between trains is brutal. Imagine Delta holding a plane if it has passengers coming in on a late arriving United flight and you get the idea. The only people who have benefitted have been the directors and seniors employees of the train companies (lots of stock options etc.).

Bit of a ramble, I know, but the issue of privitizing essential services deserves much more public comment than it currently generates.

JC

-- Johnny Canuck (j_canuck@hotmail.com), December 14, 2000.

Justice Dept Asked to Probe Power Crisis

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=004FY0

-- (also@see.this), December 15, 2000.

I live in a state, which while growing, has excess power production. My power company [consumer owned] produces an excess. Next spring, they will begin installing fuel cells for home use. They are all still regulated.

This regulation stuff seems to work. It seems that the cut-throat capitalistic, profit at all costs, meme is of limited value when one is talking about infrastructure requirements that are required for survival.

Just my thoughts and experiences on the matter.

Best Wishes,,,

Z

-- Z1X4Y7 (Z1X4Y7@aol.com), December 15, 2000.

http://www0.mercurycenter.com/local/center/dereg121500.htm

Posted at 12:03 a.m. PST Friday, Dec. 15, 2000

Energy pressure builds

BY STEVE JOHNSONAND MARK GLADSTONE

Mercury News

Amid predictions that California's electricity plight will grind on well into 2002, pressure is growing to reassert government control over the state's deregulated and highly dysfunctional energy markets.

Proposals at the state level include having California take control of power plants, perhaps even the high-voltage transmission lines owned by Pacific Gas & Electric Co. and the state's other major utility companies.

At the federal level, regulators will meet today to talk about what they can do to help California. Meanwhile, pressure is mounting on the federal government to join several state investigations into irregularities in the power market.

But despite the various appeals being made, many people are skeptical about just how much regulating either level of government is likely to do.

For its part, the federal government has resisted most of California's calls for action so far, and that's not likely to change now that the White House will be run by Republicans who take a dim view of governmental meddling with markets.

So the job could fall to California authorities.

``I certainly hope the new administration looks at the facts of what's going on in California'' and decides to assist the state, said California Public Utilities Commission President Loretta Lynch. But if Washington won't help, the state will have to act itself, she said, because ``we just cannot wait around forever.''

But in the state Capitol, lawmakers' options are limited by how radically the structure of the electricity market has changed since the 1996 deregulation law -- and how hard it would be to undo those changes.

Since that law was passed, utilities have sold off many of their power plants and now must buy much of their power on the open market. Simultaneously, few new power plants have been built in recent years, but the state's demand for power has increased.

As a result, electricity supplies have dwindled -- on some days to critically low levels -- and prices have soared.

While power supplies Thursday dipped precariously low once again, triggering a Stage 2 emergency alert, the situation wasn't as dire as it had been on Wednesday, when officials said they came excruciatingly close to ordering statewide blackouts.

Nonetheless, California's on-again, off-again flirtation with electrical catastrophe isn't going to end any time soon, according to Kellan Fluckiger, chief operating officer for the Independent System Operator, which oversees most of the state's flow of power.

``I believe we will be in this kind of a crunch probably through the summer of 2002,'' Fluckiger said. ``We have a serious situation that is ongoing.''

State political leaders agree. U.S. Sen. Barbara Boxer, D-California, and state Senate President Pro Tem John Burton on Thursday asked for U.S. Attorney General Janet Reno's help in investigating ``possible collusion and other illegal activities'' by power suppliers.

Two state agencies and state Attorney General Bill Lockyer already are investigating whether power firms gouged consumers. But Burton and Boxer said that, ``by bringing in the U.S. Department of Justice, we hope to enhance the state investigation.''

The two lawmakers also said they were sending questionnaires to power- company executives, asking those with plants down for maintenance to explain those problems, which have contributed to the energy emergencies.

Federal intervention

Meanwhile, U.S. Energy Secretary Bill Richardson issued an emergency order Thursday that formalized his Wednesday decision to require out- of-state power suppliers to make electricity available to the state when it faces critical shortages. The order is effective for one week.

State officials welcomed that move, but they continued to call for help from the Federal Energy Regulatory Commission, which is meeting in Washington today.

Among other things, they have demanded that it order power firms to refund their multibillion-dollar profits to consumers.

They also want the agency to hold the line on wholesale power prices throughout the West, a point emphasized Thursday by Sen. Dianne Feinstein, D-Calif. Without such a regional price cap, she said, ``there's no way to prevent the incredible volatility from bankrupting California's three major investor-owned utilities and creating havoc for electrical customers up and down the state.''

But because the federal agency has been reluctant to take such drastic steps in the past, many people want state officials to take matters into their own hands. Lawmakers appear to be listening.

The state Assembly leadership is considering holding oversight hearings to figure out how California got into its energy predicament.

One bill that is likely to get introduced in the next few days by Burton would provide for better coordination among state agencies in managing power-plant repairs.

Taking back control

It's not clear how much control government authorities might attempt to assume over the state's electricity markets, which the Legislature deregulated in 1996. But these are among the options under consideration:

* Setting up some new government agency to buy and operate power plants and high-voltage lines owned by utilities.

* Requiring PG&E and the two other main utilities to buy back their plants or build new ones, under strict government oversight.

* Providing government financing to make heavily polluting power plants more environmentally safe so they can run more often, especially during critical electricity shortages.

* Re-regulating parts of the energy market, while leaving other parts open to competition.

* Having taxpayers provide financial assistance to utilities, to help the companies pay off their multibillion-dollar electricity debts or at least to assist them in buying power if their mounting red ink makes it hard for them to borrow money to buy power.

This last idea has been a subject of considerable speculation this week in light of the growing fear that some utilities, including PG&E, could go bankrupt. That's a big concern to consumer advocates, such as Michael Shames, executive director of Utility Consumers' Action Network in San Diego.

Some people don't believe utilities are in bad financial shape. But utilities may be able to use the threat of bankruptcy to force the state to cover their costs and defeat any effort at significant re- regulation.

``All you have to do is go back to the savings and loan debacle, and you see amazing parallels,'' Shames said in reference to the 1980s governmental bailout of that industry. ``Government can't afford not to let these utilities operate.''

Staff Writer John Woolfolk contributed to this report.

-- (in@energy.news), December 15, 2000.