S&P warns Calif. utilities risk imminent default

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S&P warns Calif. utilities risk imminent default Wednesday December 20, 2:31 PM EST NEW YORK, Dec 20 (Reuters) - Pacific Gas & Electric Corp. and Southern California Edison are at grave risk of imminent default, and are likely to see their credit ratings fall to low junk grades if they do not receive regulatory relief within the next two days, credit rating agency Standard & Poor's said on a conference call on Wednesday.

"S&P is prepared to take dramatic rating action," said Richard Cortright, an S&P analyst, in a conference call that is still ongoing. "The utilities could very much fall below investment grade. The ratings are expected to drop deeply into speculative grade to reflect the likelihood of imminent default."

The California Public Utilities Commission is expected to meet Thursday to consider whether to allow Pacific G&E and Southern California Edison to pass on at least some of their rising wholesale electricity prices to consumers. The utilities operate under a rate freeze through March 2002.

Cortright said the companies will run out of cash in a matter of weeks. "To be frank, we are amazed that events have been permitted to reach anywhere near this critical stage," he said. "It truly is unfathomable."

Pacific G&E is a unit of PG&E Corp. (PCG) Southern California Edison is a unit of Edison International (EIX). PG&E shares traded Wednesday on the New York Stock Exchange at $21-9/16, down 13/16, or 3.63 percent. Edison International shares traded at $18-1/8, down 7/8, or 4.61 percent.

http://money.iwon.com/jsp/nw/nwdt_rt.jsp?section=news&news_id=reu-n2013550&feed=reu&date=20001220&cat=INDUSTRY

-- Martin Thompson (mthom1927@aol.com), December 20, 2000

Answers

Calif. moves to protect utilities' credit standing Thursday December 21, 6:01 PM EST (Recasts throughout with plan approved, background)

SAN FRANCISCO, Dec 21 (Reuters) - California regulators on Thursday pledged to act to protect the credit worthiness of the state's two largest utilities amid warnings that a power crisis is pushing the companies to the brink of bankruptcy.

The California Public Utilities Commission, approving a draft decision, said the retail rates for electricity must begin to rise and set emergency hearings for December 27-28 to consider how to lift a price freeze imposed under legislation which deregulated the state's power markets in 1996.

"We believe that retail rates in California must begin to rise. It is our intent to maintain the utilities' access to capital on reasonable terms," the commission said.

The commission said the hearings should enable it to take firm steps at its meeting on January 4, 2001.

PG&E Corp.'s (PCG) subsidiary utility Pacific Gas and Electric Co. and Edison International (EIX) utility Southern California Edison have run up billions of dollars in power purchase costs this year which they have been unable to pass on to customers due to the price freeze.

Credit rating agency Standard & Poor's warned on Wednesday it could downgrade the debt ratings of the two utilities to junk status unless something was done in the next "24 to 48 hours" to resolve the drain on their finances.

"We will determine the feasibility of lifting the current rate freeze expeditiously, consistent with the law, and in order to evaluate and address the need for reasonable rate increases," the commission said.

A chronic shortage of electricity has led to skyrocketing wholesale power prices in California this year. There have been accusations that the shortage has led to "price gouging" by power producers.

U.S. Energy Secretary Bill Richardson warned earlier this week that the utilities were running out of cash and may be forced to lay off thousands of employees.

California Gov. Gray Davis has sought refunds from power generators and marketers who have reaped huge profits this year as prices rose to record levels.

Federal regulators have, however, refused to order refunds despite admitting prices were not "just and reasonable" as required by U.S. law.

"They (federal regulators) have chosen to ensure unconscionable profits for the pirate generators and power brokers who are gouging California consumers and businesses," Davis said last week.

Southern California Edison filed last month with state regulators to raise customers rates by 9.9 percent while Pacific Gas and Electric sought a 16.5 percent hike, both effective January 1, 2001.

Both increases were part of proposed five-year "rate stabilization" plans which also involved several additional subsequent price rises.

http://money.iwon.com/jsp/nw/nwdt_rt.jsp?section=news&news_id=reu- n21170023&feed=reu&date=20001221&cat=INDUSTRY

-- Martin Thompson (mthom1927@aol.com), December 21, 2000.


Pacific Gas and Electric Company Issues Statement on Utility Financial Crisis December 21, 2000

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SAN FRANCISCO--(BUSINESS WIRE)--Dec. 20, 2000 via NewsEdge Corporation -

Pacific Gas and Electric Company President and CEO Gordon R. Smith today issued the following statement in response to remarks by Standard & Poor's on today's conference call:

"For months, California's utilities, including Pacific Gas and Electric Company, have faced a growing financial challenge, due to a badly broken wholesale power market and price gouging by wholesale power sellers. In order to ensure continued service to our customers during this time, Pacific Gas and Electric has virtually exhausted its financial resources, borrowing an average of $1 million per hour to pay for the power we deliver to Californians. No company can continue to operate indefinitely under such conditions.

"Standard & Poor's communicated this message loudly and clearly this morning on a public conference call with the financial community. S&P warned that utilities will no longer be able to finance wholesale power purchases without clear and definitive action from decision makers that ensures these costs can be repaid. Citing the threat of imminent default, S&P said it must see dramatic action by California decisionmakers within 24 to 48 hours in order to prevent a downgrade of the utility's credit rating to 'deeply speculative' levels.

"Today's S&P conference call sends a message to Governor Davis and California's leadership that now is the time for action. We need to agree on solution that immediately addresses the problems created by the outrageous actions of generators and marketers and the failure of the Federal Energy Regulatory Commission to restrain them. However, the future of California's economy cannot depend on when the federal government acts. The solution to this problem is now in the hands of the Governor and the California Public Utilities Commission. They ultimately will determine if Pacific Gas and Electric Company can continue to provide essential services to the 14 million Californians in PG&E's service territory.

"It is astounding that only hours after Standard & Poor's warnings, TURN and others are still questioning the severity of this crisis and advocating steps that will make the problem worse, including one proposal that S&P called 'devastating.' To its credit, the Public Utilities Commission removed TURN's proposal from consideration at this time. With the severity of the crisis facing California's utilities, the effort now is exactly where it should be, namely on finding solutions, not continuing to debate the existence of the problem."

"The time for pointing fingers has passed. This challenge requires the utmost leadership from all parties in order to find a solution."

CONTACT: PG&E News, 415/973-5930

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-- Martin Thompson (mthom1927@aol.com), December 21, 2000.


&P Gives California 48 Hours to Grant Rate Hikes

LCG, Dec. 21, 2000--The big credit rating agency Standard & Poor's yesterday gave California until tomorrow to figure out a way for Pacific Gas & Electric Co. and Southern California Edison Co. to get paid for the electricity they have purchased and delivered almost gratis to their retail customers.

S&P analyst Richard Cortright said his firm would cut the credit ratings of the companies to below investment grade "Absent meaningful and sustainable actions by the decision makers in the next 24 to 48 hours."

Such a downgrade would make it impossible for the utilities to borrow money in order to continue purchasing wholesale power for their customers. It would also make it impossible for PG&E and SoCal Ed to issue bonds to make needed improvements in their transmission and distribution systems.

PG&E chief executive Gordon R. Smith said that since the California power crisis began in late spring his company "has virtually exhausted its financial resources, borrowing an average of $1 million per hour to pay for the power we deliver to Californians. No company can continue to operate indefinitely under such conditions."

The other day, PG&E said it was in the hole about $4.6 billion for power it purchased for delivery at rates frozen at 10 percent below 1996 rates. SoCal Ed was $3.5 billion out of pocket. Both numbers are higher today.

California Gov. Gray Davis has been meeting with utilities in an attempt to come up with a compromise under which the companies' shareholder would pay for most of the uncollected charges. His press secretary said Tuesday that the governor was attempting to see how much of a loss the companies could sustain.

Self-appointed consumer advocates in California have been strident in their demands that the utilities be forced to bear the entire burden. Smith found it "astounding that only hours after Standard & Poor's warnings, (activists) are still questioning the severity of this crisis and advocating steps that will make the problem worse, including one proposal that S&P called 'devastating.' "

S&P said a rate increase on the order of 20 percent over three to five years would help preserve the utilities' "A" to "AA" credit ratings. "These companies, as big and strong as they once were, are on the brink now," Cortright said.

http://www.energyonline.com/news/articles/1221ca1.asp

-- Martin Thompson (mthom1927@aol.com), December 22, 2000.


Posted at 9:55 p.m. PST Friday, Dec. 22, 2000

Wall Street backs away from threats to credit

Reversing Wednesday's warning about lower credit ratings, New York analysts left California's utilities untouched Friday. BY BRANDON BAILEY Mercury News

Wall Street granted California's major utilities a reprieve from possible bankruptcy on Friday, just two days after analysts threatened to drastically lower the power companies' credit ratings unless state officials raised consumers' electric rates.

Analysts at Standard and Poor's and Moody's Investors Service left the utilities' ratings unchanged on Friday, in part because regulators have now declared their intention to approve a rate increase next month.

But the Wall Street companies said that the utilities remain on precarious footing and that their credit status could still be lowered -- particularly, they said, if consumer prices aren't raised high enough.

The state's two biggest utilities -- Pacific Gas & Electric and Southern California Edison -- say they have racked up $8 billion in deficits because wholesale power costs have soared above the rates they are allowed to charge consumers under the state's 1996 deregulation law.

Gov. Gray Davis has said consumers must shoulder some of those costs, but he has promised not to make them pay for all the debts that utilities incurred under a deregulation plan that the companies helped negotiate.

Standard & Poor's, however, said Friday that there is a ``strong likelihood'' the utilities will still be downgraded if they are not allowed to recover all their costs. Moody's echoed that warning.

Even so, the reprieve announced Friday drew expressions of relief from investors, state officials and utility executives, who said the cash-strapped power companies could face bankruptcy if lower credit ratings leave them unable to borrow money to continue buying electricity for their customers.

But the news was derided by consumer advocates, who have accused the utilities of exaggerating their financial problems. Consumer groups characterized Wednesday's warning from Standard & Poor's -- which threatened to downgrade the utilities to junk-bond status if no action was taken in 48 hours -- as an attempt to bully California officials into an unjustified corporate bailout.

``It was a bluff all along,'' charged Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. ``It was an outrageous intrusion into California affairs that suggests a conspiracy to extort government action.''

The two big utilities, which together serve almost two-thirds of the state's power consumers, say they have virtually exhausted their financial resources. They have asked permission to raise their rates by at least 15 percent and have said they may need to raise them even more if wholesale prices don't decline.

Both credit agencies said they decided not to lower the utilities' credit ratings on Friday after the California Public Utilities Commission took steps Thursday toward enacting an unspecified rate increase on Jan. 4.

In a news release, S&P said the PUC's actions were ``far from definitive'' but still could be viewed ``as a constructive step toward supporting the utilities' financial integrity.''

Edison announced several cost-cutting moves on Friday, including the elimination of its fourth-quarter stock dividend, worth about $90 million, and cancellation of $100 million in maintenance projects that represent about 400 contract labor jobs.

PG&E has not changed plans, announced two months ago, to pay a quarterly dividend next month. But a spokesman said the company has ordered a halt to unnecessary spending -- on such things as travel and office expenses -- that doesn't affect customer service.

``While the rating agencies did not downgrade California's utilities today, it's still a very serious situation,'' said PG&E spokesman John Nelson.

The PUC has announced plans to hold two days of hearings next week. Gov. Gray Davis, meanwhile, is holding talks with utility executives, consumer advocates and legislative leaders in an effort to negotiate terms of the rate increase.

Davis also announced Friday that he will meet next week with Federal Reserve Chairman Alan Greenspan to ask for suggestions on dealing with the crisis.

Stock prices for the parent companies of both firms had plunged on Thursday, but partly rebounded on Friday. PG&E Corp. shares dropped $2.69 to $18.25 on Thursday, then rose $1.81 to $20.06 on Friday. Edison International fell $2.94 to $14.94 on Thursday, but regained $1.31 to hit $16.25 on Friday.

Citing unusual market conditions, PG&E's board took steps this week to prevent a hostile takeover. The board adopted a ``poison pill'' measure that makes it difficult for another company to acquire the utility without the board's consent. A spokeswoman said PG&E wasn't aware of any takeover attempts and described the move as ``strictly a precautionary measure.''

While it appears the state won't allow the utilities to go bankrupt, stock market analysts said, there is still tremendous uncertainty about the companies.

Some analysts agreed with the credit agencies' insistence that the utilities must be allowed to recover all of their shortfall from customers.

``Why should shareholders subsidize the customers?'' asked Paul Patterson, who tracks utilities for Credit Suisse First Boston. ``These companies are not responsible for these power costs.''

Others allowed that there might be room for compromise.

Utilities must be allowed to raise their rates to match their future costs, said Paul Fremont, an analyst with Jefferies & Co. But while lenders clearly don't want the utilities to be stuck with all the debts incurred to this point, ``the ultimate solution may involve some sacrifice.''

Mercury News staff writer Chris O'Brien contributed to this report.

http://www0.mercurycenter.com/local/center/power1223.htm

-- Martin Thompson (mthom1927@aol.com), December 23, 2000.


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