PG&E Corp. says it can't raise cash Company follows Edison, suspends Q4 dividend

By Myra P. Saefong, CBS.MarketWatch.com Last Update: 5:55 PM ET Jan 10, 2001 NewsWatch

SAN FRANCISCO (CBS.MW) -- PG&E Corp. warned Wednesday that it is on the brink of bankruptcy and may be forced to cut off power and gas supplies to some of its 12 million California customers as early as next month.

In a filing with the Securities and Exchange Commission Wednesday, the San Francisco-based utility said it's unable to borrow more money to buy electricity or natural gas and will default on its current obligations without "immediate regulatory, legislative or judicial relief."

1/10/2001 5:00:44 PM ET The filing detailed "what's already been assumed in the market," Brian Youngberg, an analyst at Edward Jones said, that PG&E's utility has a "significant cash crunch and action is need quickly."

Shares of PG&E (PCG: news, msgs) fell to a two-day low at $12.13, but closed slightly higher at $13.56, up 6 cents Wednesday. Edison (EIX: news, msgs) shares added 19 cents to close at $11.31.

PG&E's utility asked Calif. Gov. Gray Davis to "use his emergency powers to permit the state to provide temporary financial assistance sufficient to meet the demands of gas suppliers, such as by functioning as an interim purchaser or otherwise provide credit."

In an effort to cut costs, PG&E separately announced the suspension of its 30-cent per share, fourth-quarter dividend late Wednesday.

Additionally, its utility unit, Pacific Gas & Electric, said it won't declare its regular preferred stock dividend for the three-month period ending Jan. 31 or pay the $110 million dividend declared in October to its parent company.

Further payment of dividends will depend on the "restoration of the financial health of both companies," PG&E said. It has also announced that it will postpone the release of its Q4 financial results to an unspecified date as it awaits the outcome of ongoing state and federal efforts to resolve the crisis.

PG&E Corp. and Edison International have run up billions in debt buying electricity on the spot wholesale markets, which they must sell at retail rates capped by California regulators.

PG&E said wholesale power prices in December spiked to over $400 per megawatt-hour, 1,000 percent higher than a year ago. As a result, its utility came up $6.6 billion short between the amount it pays for power and the amount it receives in revenue from its customers as of the end of last month.

If a significant number of gas suppliers terminate their gas contracts and refuse to sell gas to PG&E, the company will exhaust its stored gas supplies by mid-February "and there would be sustained curtailments of major portions of the Utility's gas system."

About two-thirds of PG&E's gas supplies are committed to power plants that use it to fuel electric generation.

In a Dec. 22 SEC filing, Edison's Southern California Edison utility warned that its undercollections were expected to reach $4.9 billion by the end of the year.

The utility has since announced that its cutting costs by a total of $465 million by cutting jobs and elimination of its fourth-quarter dividend. See full story.

Twists and turns

A meeting of state and federal officials with utility executives late Tuesday produced an agreement "on the need for cooperation to maintain stability and avoid bankruptcy of California utilities." But few details emerged on any plan. See related story.

The parties agreed to hold technical meetings Wednesday, with more discussion set for this weekend.

"This is the most encouraging news that has come in a while," Steve Fleishman, an analyst at Merrill Lynch, said in a research note Wednesday.

Fleishman said it appeared that progress was being made in the talks.

Part of the solution being worked out in Washington would allow the companies to enter long-term supply contracts with generators and power marketers, thus protecting them from day-to-day fluctuations in the spot market for power. A second element of the solution would call on marketers to provide short-term "forbearance" on collecting payments of billions of dollars owed by the California utilities, according to Fleishman.

Still, the analyst remains cautious. "This saga has had many twists and turns and real legislative action and contracts are critical," he added. He maintains "neutral" ratings on PG&E and Edison.

In his "State of the State" address Monday evening, Davis said he will set aside $1 billion for new power generation and conservation measures, but didn't mention any specific action to help the utilities.

California State Assembly Speaker Robert Hertzberg appointed an energy committee late Monday that will conduct hearings to "probe the financial practices among utilities and generators."

http://cbs.marketwatch.com/archive/20010110/news/current/power.htx?source=htx/http2_mw

-- Martin Thompson (mthom1927@aol.com), January 10, 2001