Electricity threat to US banks

SPECULATION is mounting that US politicians will be forced to bail out the country’s two biggest electricity suppliers as fears increase that their collapse could completely undermine the US banking sector.

Should Californian’s Southern California Edison and Pacific Gas and Electric, which are currently on the edge of collapse, go bankrupt, it could pose a major threat for leading US financial institution Bank of America, one of the utilities’ main creditors.

The shadow of bankruptcy hanging over the firms has sent a tremor through the nation’s already jittery equity and debt markets, amid rumours that the Bank of America is in financial difficulties.

California’s governor Gray Davis, a vocal critic of the companies, was due to meet Treasury officials in Washington yesterday, along with utility and power company executives, to discuss ways to ease the state’s current power supply crunch and avert bankruptcy of the two firms.

Organisers said the meeting would be a "substantive discussion, designed to bring all the parties together to try to resolve the problems".

Southern California Edison and Pacific Gas and Electric have constantly complained they are prevented from increasing electricity bills, while at the same time they are forced to pay much higher costs for wholesale electricity.

This has resulted in both companies amassing debt at an alarming rate.

Pacific Gas and Electric is estimated to be currently borrowing an average $1m per hour to pay for electricity delivered to its 4.5m customers.

At the end of last year, Southern California Edison had unrecovered power costs estimated at $4.9bn.

The companies have warned that they will run out of cash within three weeks if they do not get state help or regulatory relief.

The fear is that the bankruptcies could create a crisis in the banking sector which would then exacerbate the current US economic slowdown, making attempts by the Federal Reserve to prop up the economy through cutting interest rates useless.

Last week California regulators approved a series of temporary rate increases of 7 to 15 per cent for customers of Southern Californian Edison and Pacific Gas & Electric, but stopped well short of the 26 per cent to 30 per cent increases the companies have insisted they need to bail them out.

Davis believes both companies are crying wolf, and has proposed sweeping plans to enable California’s politicians to regain control of its electricity market and reverse what he has called the "colossal and dangerous failure" of market deregulation.

Davis has proposed the establishment of a state power authority to buy and build new generating capacity or a "joint powers" authority to reinforce the role of the remaining 30 municipal power companies which are still regulated.

He added that he wanted to immediately restructure the boards of the market supervisory bodies to replace utilities’ advocates with consumer representatives.

He also offered $1billion to help stabilise electricity prices plus an additional $250m to subsidise consumers who purchased energy-efficient appliances.

Separately on Monday, a US District Court judge in Los Angeles said Southern California Edison can proceed with a lawsuit enabling it to force state regulators to allow it to recover almost $5 billion in wholesale costs beyond what it receives under the state’s frozen retail rates system.

Michael Glackin Business News Editor Wednesday, 10th January 2001 The Scotsman

http://www.scotsman.com/cfm/home/text_only.cfm?articleid=38193&domain=www%2Ethescotsman%2Eco%2Euk&pathinfo=%2Fbusiness%2Ecfm&qstring=id%3D38193&navlevel2=

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

Answers

I'd call this motivation to seek out alternative energy!
To seek out 5 Billion dollars out of the Californy economy is just ludicrous. If this does not screw the golden goose nothing will aside from rolling blackouts.

-- (perry@ofuzzy1.com), January 10, 2001.

"Davis has proposed sweeping plans for California's politicians to regain control of its electricity market."

Oh, boy, the nation needs more govenors like this. We'd soon become a Banana Republic.

-- JackW (jpayne@webtv.net), January 11, 2001.