Credit rating agencies downgrade California utilities

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Credit rating agencies downgrade California utilities

By MICHAEL LIEDTKE, Associated Press

SAN FRANCISCO (January 5, 2001 1:24 p.m. EST http://www.nandotimes.com) - California's two largest utilities, teetering on the brink of financial collapse, have been handed a double whammy by getting only a fraction of expected rate hikes and experiencing Wall Street's wrath. A court also has turned aside a company motion for federal intervention.

The state authorized immediate rate increases Thursday ranging from 7 percent to 15 percent - or about half of what Pacific Gas & Electric Co. and Southern California Edison Co. had requested.

Standard & Poor's, Moody's and Fitch Inc., major credit rating agencies, expressed disappointment with the emergency rate increases by downgrading PG&E Corp. and Edison International. The companies are the corporate parents of San Francisco-based Pacific Gas and Electric Co. and Rosemead-based Southern California Edison.

SoCal Edison got more bad news Friday in Washington, where a federal appeals court rejected the utility's suit seeking to order federal regulators to set electricity prices in California.

SoCal Edison had asked the U.S. Court of Appeals to order the Federal Energy Regulatory Commisison to set prices on wholesale electricity. FERC had argued the company's request would not fix the price crisis.

The three-judge panel said the company "has not demonstrated that its right to this relief is clear and indisputable."

PG&E's stock plunged $5, or 29 percent to $12 in Thursday trading; Edison's shares dropped $1.50, or 12 percent, to $10.75. In midday trading Friday, PG&E's stock was up 31 cents at $12.31 a share while Edison's shares were up 13 cents at $10.88.

The prospect of "a bankruptcy like no other" has prompted President Clinton's administration to arrange a meeting between top state and federal officials at the White House on Tuesday, The New York Times reported Friday.

California's five-member Public Utilities Commission, which unanimously approved the 90-day rate hike, also urged the state Legislature to back a bond package for bailing out the utilities.

Still, Wall Street didn't think enough had been done.

"This slows down their march toward bankruptcy, but that's where they're still headed unless something more is done," said analyst Barry Abramson of UBS Warburg.

Fitch deemed the commission's temporary increases "wholly insufficient" and lowered ratings of PG&E Corp. and Edison International to junk bond status, or less than investment grade.

Meanwhile, S&P, the most closely watched agency, dropped the utilities to "BBB," or a grade above junk.

In a statement, S&P indicated it held back on the junk rating because there still appeared to be a "reasonable chance" that Gov. Gray Davis and the state Legislature would bail out the utilities.

Moody's followed suit Friday, also lowering the parent companies's ratings to the lowest grade above junk bonds.

At this stage, the credit ratings have a greater impact on the utilities' debt, now estimated at about $10 billion.

If the utilities had been ranked below S&P's investment grade, banks could have forced them to repay debts immediately.

The utilities may be counting on a state-backed multibillion-dollar bond package to refinance the utilities' debts, with ratepayers paying off the bonds through a monthly surcharge on their bills.

The utilities' crisis came because they buy power for roughly 30 cents a kilowatt hour but, because of a rate freeze, could only charge customers about a fifth of that amount.

The rate freeze, part of California's 1996 deregulation law, was established at what was then a generous level to assure utilities a steady stream of revenue as they sold off power plants and made the transition to deregulation. But earlier this year, the price of wholesale electricity skyrocketed.

In his State of the State Address on Monday, Davis is expected to renew his plea to federal officials to intervene in California's electricity crisis and propose a $1 billion energy conservation and supply plan.

The plan would include low-cost financing to build power plants, plus incentives for buying energy-efficient home appliances.

The governor called the PUC's Thursday decision "unfortunately necessary" because of "the colossal failure of California's deregulation scheme."

http://www.nandotimes.com/noframes/story/0,2107,500296460-500472335-503208527-0,00.html



-- Martin Thompson (mthom1927@aol.com), January 05, 2001


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