It's hard to disagree with the fact that 1) the utilities are the ones that 
cut the deal they're living with and 2) they took all of the "stranded cost" 
money that consumers paid them and invested it in other states and 
countries.  

But you can only buy for 10 cents and sell for 5 cents for so long before 
creditors turn off the spigot.  Difficult to see how the spigot stays on with 
the draft decision issued today.  (See story attached, below.)  

With bankruptcy, the only one making any decisions is the judge, and while 
some see benefits to that, seems to us that from a political, financial and 
commercial perspective, bankruptcy creates many more problems than it solves.

That said, we're extremely sensitive to the politics of rate increases.  But 
if the increases are subject to refund, then decision makers can buy 
themselves some time by erring just slightly to the high side of a rate 
increase, which could fend off the ratings agencies and provide additional 
opportunity over the next 90 days or so to scrutinize the utilities claims 
and come up with comprehensive solutions to the bigger problems.

Well, you got my two cents.  Sorry about that.  

Best,
Jeff
******************************************************************************
********************

Late afternoon 1/3/01 news:


USA: Calif utility ratings may fall too far on 7-15 pct hike.
By Jonathan Stempel

01/03/2001 
Reuters English News Service 
(C) Reuters Limited 2001. 

NEW YORK, Jan 3 (Reuters) - Bankruptcy may loom and the credit ratings of the 
two largest California electric utilities will likely fall too far if that 
state's Public Utilities Commission awards them an interim rate hike of 7 to 
15 percent, analysts said Wednesday.

In a draft decision on Wednesday, the CPUC proposed an immediate hike of 9 
percent for residential customers of Pacific Gas & Electric Co. and Southern 
California Edison, and hikes of seven to 15 percent for various business 
customers.

The CPUC commission is expected to issue a final decision on Thursday.

"It forces the utilities and their creditors to be limbo dancers, and skilled 
limbo dancers at that," said Shawn Burke, head of U.S. investment-grade 
research at Barclays Capital.

PG&E and SCE had requested respective rate increases of 26 percent and 30 
percent, a hike that would help them avoid imminent bankruptcy.

The utilities have also asked the regulators to remove a freeze on retail 
rates imposed under California's 1996 law that deregulated the state's 
electricity market.

On a day when most stocks roared ahead after the Federal Reserve announced 
surprise interest rate cuts, investors beat down the stocks of Pacific G&E's 
parent, San Francisco-based PG&E Corp. , and SoCal Edison's parent, Edison 
International .

PG&E shares closed Wednesday on the New York Stock Exchange at $17, down 
$2-9/16, or 13.1 percent, while Edison International shares closed at 
$12-1/4, down $2-3/4, or 18.3 percent, on the Big Board.

Bond quotations were not immediately available for the utilities' bonds, 
which in recent weeks have traded like junk.

Pacific G&E and SoCal Edison were banking on a big rate hike to allow them to 
pass on some of their soaring wholesale power costs to consumers.

The utilities, which operate under a rate freeze, have accumulated more than 
$8 billion in unrecovered costs since wholesale power prices started 
skyrocketing last summer amid a worsening electricity shortage in the state. 
They claim they are running out of money due to the price freeze, and have 
billions of dollars of bills coming due in the next six weeks.

Central to their concerns is whether credit rating agencies Moody's Investors 
Service and Standard & Poor's will cut their medium investment grades to junk 
status.

"No one knows for sure, but if we consider the average rate hike is only 
about 10 percent, it will be difficult for the companies to maintain 
investment-grade ratings," said Dorothea Matthews, a fixed-income electric 
utilities analyst for Deutsche Banc Alex. Brown.

The utilities have already been unable to tap short-term capital markets 
because of their precarious financial state.

Downgrades to junk, which the agencies have already threatened, would cement 
the door shut to these markets, and cause the utilities to default on some of 
their loans.

Late Wednesday, PG&E Chief Executive Gordon Smith said the commission's 
proposed hikes could jeopardize his utility's future loans.

Even a downgrade to the lowest investment grades - "Baa3" for long-term debt 
and "Prime-3" for short-term debt from Moody's, and "BBB-minus" and "A3" from 
S&P - would make the going very difficult for the utilities. The reason: 
short-term debt markets are often closed to companies with those ratings.

"Unless this process allows the rating agencies to keep 'A2/P2' ratings on 
the short-term debt of both companies, then this process has largely been a 
waste of everyone's time," said Burke.

Still, he said, "there is a reasonable chance, despite today's weak 
recommendation, that the situation can be salvaged with mid-'triple-B' 
ratings, which would allow a lifeline to conventional sources of liquidity."

Moody's and S&P were not available for comment.



 

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved



	Kari Dohn <Kari.Dohn@GOV.CA.GOV>
	01/03/2001 06:30 PM
		 
		 To: "'Jeff.Dasovich@enron.com'" <Jeff.Dasovich@enron.com>
		 cc: 
		 Subject: RE: Additional Materials

thank you so much.  so the news aint great for utilities?

-----Original Message-----
From: Jeff.Dasovich@enron.com [mailto:Jeff.Dasovich@enron.com]
Sent: Wednesday, January 03, 2001 2:14 PM
To: Kari Dohn
Subject: Additional Materials



Greetings Kari:

Forgive the delay.  Much going on today, PUC draft decision in particular.
The draft does not look promising for the utilities' financial position.

Attached are our comments on the Governor's Proposals and some more detail
on the demand-reduction proposal.  We continue to work on the Nord Pool
research for you and will turn that around as quickly as we can.

Again, don't hesitate to contact me if there's anything else I can help
with, or if there's anything else that you need. (415.782.7822)

Best,
Jeff

(See attached file: Comments on Governor's Proposals 010301 .doc)(See
attached file: Demand buy-down proposal.doc)