Mixed Message From California Edison Is Making Critics Skeptical

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Saturday, December 16, 2000 Mixed Message From Edison Is Making Critics Skeptical Utilities: Company declares a dividend and launches an ad campaign, amid warnings of rationing and record prices.

By NANCY RIVERA BROOKS, Times Staff Writer

Launching a fresh wave of advertising and declaring a stock dividend hardly hint at a company on its deathbed, and Southern California Edison, which did both Thursday, clearly is not ready to wear a toe tag.

Rosemead-based SCE and San Francisco-based Pacific Gas & Electric have been paying record electricity prices in the California market that cannot be passed along to customers because of a rate freeze, leaving the utilities with more than $8 billion in electricity-related debt between them. The two utilities have been talking openly in recent days about the financial crunch but now insist they are not on the verge of bankruptcy.

This mixed message has consumer advocates profoundly skeptical about the ill health of the utilities, seeing an attempt to influence politicians and regulators. These groups fear that big rate hikes might be ordered to keep the utilities out of bankruptcy court. But if past utility bankruptcies are any guide, huge court-ordered rate hikes might happen anyway. New Hampshire's largest utility emerged from bankruptcy in 1991 with sharply higher rates mandated by the court.

Wall Street has little doubt that the utilities are on the edge of financial disaster, noting that both companies have had difficulty in recent days arranging credit. "California is playing with fire here," said Bob Christensen, an energy analyst with the New York investment firm First Albany Corp. "These are some of the largest utilities serving the sixth-largest economy in the world, and they're in dire straits." Finances are so pinched for the utilities that a somber John E. Bryson, chief executive of SCE parent company Edison International, took to local television Thursday night to warn of electricity rationing if California's market problems aren't solved quickly. PG&E executives also have warned of serious financial difficulties. In fact, SCE and Pacific Gas & Electric have been so successful in putting out that message in the last week that some power generators got spooked and refused to sell electricity to California, fearing they might never be paid.

Their threat to abandon the market here brought the state's electricity crisis and the utilities' credit crunch to a head. U.S. Energy Secretary Bill Richardson had to step in and order generators to sell into the market. That rare step puts the credit of the U.S. government behind the beleaguered utilities, at least for the weeklong duration of the order.

But both utilities are now saying that, although they are sick, they are not dying. Bankruptcy is not being contemplated currently, they say, and both companies still have considerable cash on hand to buy power for their customers and pay their employees. "We have not used the B-word," Bryson said, adding that "we have fairly substantial cash today."

Nevertheless, he said, "we are being queried intensely by people concerned about our credit"--the three major credit-rating agencies, as well as the generators from which the utility buys most of its power. SCE is having difficulty arranging a $1-billion line of credit it previously thought was locked up, Bryson said, noting: "In some ways, this is more than a power crisis, this is a credit crisis." PG&E also said it is not on the verge of bankruptcy, as some politicians have said in recent days. "It's not like we're going to run out of cash tomorrow," said Gabe Togneri, vice president of investor relations. A $1.8-billion line of credit the company raised a month ago "is a lot of money . . . but it's not going to last anywhere near as long as we imagined." Neither company would disclose how much cash it has on hand. Skeptical consumer advocates note that the utilities' parent companies have healthy earnings and other subsidiaries that are profiting from high electricity prices. What's more, SCE on Thursday declared a quarterly dividend of $1.8075 per share on its preferred stock, and the company is spending undisclosed dollars on the new cautionary advertisements on TV, on radio and in newspapers.

"It's just a big game of chicken to see who will blink first--Gov. [Gray] Davis or FERC," said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, referring to the Federal Energy Regulatory Commission. The commission issued an order Friday aimed at restructuring the state's dysfunctional electricity market. Chapter 11 bankruptcy, under which a company continues to operate while it works out a plan to pay its bills, is a rare and harsh refuge for utilities.

Public Service of New Hampshire filed for Chapter 11 bankruptcy protection in January 1988 because it was unable to recover the costs of building a nuclear plant. The utility emerged three years later with sharply higher rates set by the court, said spokesman Martin Murray.

"What we all learned here is that when a utility goes bankrupt, the costs don't go away. They still have to be paid by someone," he said. Copyright 2000 Los Angeles Times

http://www.latimes.com/cgi-bin/print.cgi

-- Martin Thompson (mthom1927@aol.com), December 16, 2000


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