Bob, see the quote about $83 /5-yr power

GAC

  
Article 1   Next Article    Return to Headlines 
 
 
 
 


 
 
Moody's:Won't Downgrade Calif Utils To Junk Before Jan 4  
 
 
  
12/22/2000  
Dow Jones Energy Service  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
NEW YORK -(Dow Jones)- Moody's Investors Service doesn't expect to reduce the 
debt ratings of California's two largest utilities below investment grade 
status before state regulators meet on a rate hike on Jan. 4. 
But the ratings agency said in a press release Friday that it might still cut 
the ratings of PG&E Corp. (PCG) unit Pacific Gas & Electric and Edison 
International (EIX) unit Southern California Edison next week to a level 
short of speculative status, and set strict terms for what it would consider 
a favorable ruling by regulators on Jan. 4. 
 
  
"Moody's will continue to review for possible downgrade the ratings of 
Southern California Edison Company and its parent, Edison International, and 
the ratings of Pacific Gas and Electric Company and its parent, PG&E 
Corporation, and may take additional rating action next week prior to the 
January 4th meeting," Moody's said. "However, it is not anticipated at this 
point that any rating action taken prior to the January 4th meeting would 
result in the ratings of the utilities or their respective parents falling 
below investment grade." 
     

Southern California Edison and Pacific Gas & Electric have lost a combined $8 
billion since May buying wholesale power at prices that far exceed the fixed 
rates they're allowed to charge their customers. 


Between one-third and one-half of that figure is offset by profits from power 
plants the utilities still own, but the net losses are substantial and 
mounting. Both utilities have said they soon will become unable to continue 
buying power for their customers if the situation persists. 


Ratings agency Standard & Poor's warned Wednesday that both utilities face 
imminent default and a downgrading of their debt ratings to junk-bond status 
unless California officials acted immediately to raise rates and restore the 
utilities to liquidity. 


On Thursday, the California Public Utilities Commission agreed rate hikes 
were needed. 


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


But the commission deferred a final ruling on rates until Jan. 4, pending 
hearings on the matter scheduled for next week. 


Standard & Poor's wasn't immediately available to comment on the decision. 


Moody's said Friday that the PUC's decision was a "necessary first step" in 
restoring the utilities to financial viability. Comments by the PUC and other 
officials indicated their desire to maintain the utilities' investment-grade 
status, Moody's said. 


But Moody's set strict terms for what must come out of the PUC's Jan. 4 
meeting if the utilities are to avoid being downgraded to speculative status. 


"Specifically, at that meeting, the utilities need to obtain the right to 
immediately raise rates by a sizeable amount and must obtain the unquestioned 
and unambiguous ability to recover past and future wholesale procurement 
costs," Moody's said. "The failure by the CPUC to act in a prompt and 
constructive way around these two issues could result in the utilities' 
ratings being downgraded to below investment grade." 


Such a downgrade would hurt the utilities' ability to fund power purchases 
and day-to-day operations, Moody's said. 


-By Andrew Dowell, Dow Jones Newswires; 201-938-4430; 
andrew.dowell@dowjones.com

 
 

 
   
Article 2   Next Article  Previous Article   Return to Headlines 
 
 
 
 


 
 
POWER POINTS: Calif Utils Won't Fail; Competition Will  
By Mark Golden  
 
  
12/22/2000  
Dow Jones Energy Service  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
A Dow Jones Newswires Column <~> 
NEW YORK -(Dow Jones)- Fans of the movie "Erin Brockovich" have been tempted 
to fantasize about executives from California's two main investor-owned 
utilities, PG&E Corp. (PCG) and Edison International (EIX), heading to 
bankruptcy court. 
 
  
Dream on. 

True, this week the utilities didn't get either of the two things they need 
to escape the astronomically expensive spot market for electricity in 
California: a rate increase and long-term contracts with independent 
generators at prices they can afford under new rates. With lending sources 
virtually dry, both utilities have said they are about to run out of the cash 
needed to continue buying electricity in the spot market. 


But hearings on a rate increase are scheduled to resume next week followed by 
the California Public Utilities Commission vote on Jan. 4, and long-term 
contract negotiations are to resume Jan. 3. 


Both negotiations are likely to succeed in keeping the companies afloat 
because almost all parties would lose with the utilities under Chapter 11 
protection and because the price to save the utilities isn't that high. The 
rate increase decision was postponed Thursday because California Governor 
Gray Davis and his CPUC are trying to give the corporations only what they 
need to survive and not a penny more. If Davis succeeds - he is insisting on 
an independent audit of the holding companies and all subsidiaries - 
shareholders can expect to see their dividends cut. 


Sorting out the finances of the $21 billion PG&E, which is the 73rd largest 
U.S. company, and $10 billion Edison International must be daunting. 


But here are the basics: First, the utilities have to get out of the spot 
market. SCE charges residential and small commercial customers 12 cents a 
kilowatt-hour, of which 6.6 cents - or $66 a megawatt-hour - goes for 
electricity. The rest covers transmission and distribution, some other costs 
and the utility's profit. 


In the day-ahead and spot market, where SCE has been buying almost half the 
power it needs, the utility has been paying about $350/MWh. Rates, obviously, 
won't be tripled so that SCE can continue to buy power in the spot market. 


But the company can purchase five-year supply contracts at about $78/MWh 
currently, which it could do with a mere half-cent increase in rates. Since 
the company is already making plenty of money on the coal-fired and nuclear 
generators that it owns, a half-cent increase on all the electricity it sells 
could be applied to all of its outside purchasing, which comes to an extra 
$10 a megawatt-hour. 


Edison International is in a more dire immediate cash situation because the 
utility is two-thirds of the parent company, but Pacific Gas & Electric faces 
a more difficult situation operationally. PG&E gets only 5.4 cents/KWh, or 
$54/MWh, from customers for electricity, while wholesale prices in northern 
California are more expensive than in southern California. Finally, PG&E has 
to buy about two-thirds of the power it needs in the wholesale market, 
compared to SCE's 50%, because it sold off more of its power plants, as 
dictated by deregulation legislation, more quickly than SCE. 


Still, PG&E could pick up five-year supply contracts at about $83/MWh. A 
two-cent increase to its basic rate of 10 cents would give PG&E $30 more per 
megawatt-hour - or $85/MWh - to spend on power purchases. 


But a 20% increase may not be necessary. The governor's staff needs to find 
out the details on the substantial long-term deals PG&E had the foresight to 
sign back in October. Those deals were done at less than $55/MWh, and they 
kick in Jan. 1. 


The governor's staff may also look at the unexpectedly high profits from 
SCE's and PG&E's nuclear power plants. The utilities have cut costs at the 
plants, so instead of making just 6% return on capital, the utilities have 
been getting a net gain of 30% on nuclear revenues, according to Bob 
Finkelstein of The Utilities Reform Network. If the utilities say 
deregulation decisions such as the rate freeze must be reexamined because 
they are bankrupting the utilities, then, TURN says, the deregulation 
decisions that have resulted in unexpected gains for the utilities should be 
looked at, too. 


Nevertheless, retail competition in California is dead for another five 
years. The utilities get their modest rate increases with the insistence that 
they lock up their needed supplies under long-term contracts. The contracts 
will be approved by the CPUC, which means the utilities are guaranteed to be 
paid for the costs even if wholesale power prices fall below $80/MWh in three 
to four years, as expected. 


The only way to ensure that the utilities get paid is to add a new 
"non-bypassable" transition cost to customer bills for five years, which 
means that even if a customer chooses an alternate power supplier, they will 
still be sending money back to PG&E and Edison to pay for this year's 
debacle. 


The current non-bypassable charges, which are scheduled to end in March 2002, 
are what has killed retail competition since 1997. Competitors can't offer 
much in the way of savings, so almost nobody bothers to switch. 


Electricity traders and regulators wonder why the utilities keep buying so 
much power at the last minute through the Independent System Operator, which 
will pay almost anything to keep the lights on. Right now, the ISO is paying 
$700/MWh for power that readily could have been bought Thursday for $400/MWh. 


This practice over the past six months has run up Edison's debt to a 
projected $2.3 billion at the end of December and PG&E's to $4 billion. 
(Edison overstates its real losses by 50%; PG&E, by 33%.) 


So, for about $6 billion dollars, the utilities will get a rate increase and 
four more years of protection from competition in their $20 billion business. 


These guys are good. 


Was all this intentional? Go ask Erin Brockovich. 


-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com

 
 

 
   
Article 3   Next Article  Previous Article   Return to Headlines 
 
 
 
 


 
 
Industry Watchers Confident About Rate Increase for California Utilities  
 
 
  
12/22/2000  
Dow Jones Business News  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
NEW YORK -- Some observers now believe that troubled California utilities 
Edison International and PG&E Corp. will get some relief at the start of the 
new year after state regulators at least opened the door to electricity-rate 
increases the two utilities said they need to stay in business. 
Many expect the California Public Utility Commission to authorize a rate 
increase at a scheduled Jan. 4 meeting. ABN Amro Inc. analyst Daniel Ford was 
so optimistic he upgraded Edison shares to "buy" from "hold." 
 
  
Shares of the two companies, which own the state's largest utilties, hit 
52-week lows Thursday. In midday trading Friday on the New York Stock 
Exchange, PG&E (PCG), which owns Pacific Gas & Electric, was up $1.06, or 6%, 
to $19.31 while Edison International (EIX), parent of Southern California 
Edison, was flat at $14.94. 

On Thursday, the California PUC tried to reassure jittery credit markets that 
they won't let the state's big utilities go broke. Still they stopped short 
of ordering the kind of immediate relief utilities and their lenders want: 
rate increases big enough to cover exploding wholesale power costs in the 
state's deregulated energy market. 


Instead, the California PUC ordered audits of utility records and scheduled 
hearings for next week, needed to provide a legal basis for eliminating a 
rate freeze that has protected most consumers from spiraling wholesale power 
costs. 


Soaring power costs in supply-short California have produced a political 
crisis in the state, which four years ago led the nation in deregulating its 
power industry. Wholesale electricity for delivery Sunday and Monday in the 
West sold for $200 to $400 a megawatt-hour Thursday, about 10 times its 
year-ago level. 


Edison Internaitonal's Southern California Edison unit and PG&E's Pacific Gas 
and Electric Co. have said they are more than $8 billion in debt due to the 
price they must pay for electricity and the inability to pass on the higher 
costs to consumers due to a state-mandated freeze. Between one-third and 
one-half of that figure is offset by profits from power plants the utilities 
still own in the state, but the net losses are substantial and mounting. 


Both utilities have said they soon will become unable to continue buying 
power for their customers if the situation persists. Earlier this week 
ratings agency Standard & Poor's warned that both utilities face imminent 
default and a downgrading of their debt ratings to junk-bond status unless 
California officials acted immediately to raise rates and restore the 
utilities to liquidity. 


The utilities' deteriorating credit situation has left some generators 
reluctant to supply power to California without guarantees they'll be paid. 
The Department of Energy has issued an emergency order requiring power 
suppliers in the West to sell uncommitted electricity to California on demand 
until Dec. 28. 


Consumer groups, which say the utilities are overstating their financial 
woes, decried the PUC decision. 


According to Mr. Ford, the utility's fate now rests in the hands of the 
Standard & Poor's. He expects S&P to downgrade Edison's utility debt by "a 
notch or two to keep politicians honest," but stop short of giving the 
companies junk bond ratings. 


Another ratings concern, Moody's Investors Service, said it doesn't expect to 
reduce the debt ratings of the two utilities below investment grade status 
before regulators meet on Jan. 4. Moody's said it might cut the ratings next 
week to a level short of speculative status, and set strict terms for what it 
would consider a favorable ruling by regulators. 


Copyright (c) 2000 Dow Jones & Company, Inc. 


All Rights Reserved.

 
 

 
   

   
Article 5   Next Article  Previous Article   Return to Headlines 
 
 
 
 


 
 
Consumer Grps Oppose Calif PUC Hint Will Raise Util Rates  
 
 
  
12/22/2000  
Dow Jones Energy Service  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
<~> (This article was originally published Thursday) <~> 
LOS ANGELES -(Dow Jones)- Two consumer advocate groups Thursday objected to a 
California Public Utilities Commission order suggesting it will decide Jan. 4 
to increase retail electricity rates for customers of the state's two largest 
investor-owned utilities. 
 
  
"We believe that retail rates in California must rise. It is our intent to 
maintain the utilities' access to capital on reasonable terms," the order 
says. 

Spokesman Bob Finkelstein of San Francisco-based The Utility Reform Network 
said such statements indicate the PUC is "kowtowing to Wall Street" rather 
than protecting ratepayers. 


Michael Shames, spokesman for San Diego-bas notion that rate increases are 
inevitable, which isn't a position anyone in the consumer movement takes," 
Shames said. 


The PUC will hold evidentiary hearings Dec. 27 and Dec. 28 on a rate 
stabilization plan by Edison International (EIX) unit Southern California 
Edison and PG&E Corp. (PCG) unit Pacific Gas & Electric Co. 


The utilities have said they are more than $8 billion in debt due to an 
inability to pass higes the PUC has something in mind to do, but they need to 
claim they had a public process before doing it," Finkelstein said. 


The PUC also will look into claims by the two consumer groups that the 
utilities aren't as financially strapped as they say. The utilities' debt due 
to "undercollections" is counterbalanced by a separate account of proceeds 
from the sale of stranded assets, the consumer groups say. 


-By Jessica Berthold, Dow Jones Newswires; 323-658-3872; 
jessica.berthold@dowjones.RES1771 


 
 
Calif Ruling On Pwr Rates Leaves Util Credit In Question  
 
 
  
12/22/2000  
Dow Jones Energy Service  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
(This article was originally published Thursday) <~> By Andrew Dowell <~> Of 
DOW JONES NEWSWIRES <~> 
NEW YORK -(Dow Jones)- California regulators opened the door Thursday to the 
retail rate hikes the state's two largest utilities say they need to stay in 
business. 
 
  
But they failed to take decisive action needed to settle the question of 
whether PG&E Corp. (PCG) unit Pacific Gas & Electric and Edison International 
(EIX) unit Southern California Edison will be able to sustain the mounting 
costs of buying wholesale power for their customers. 

Ratings agency Standard & Poor's warned Wednesday that both utilities face 
imminent default and a downgrading of their debt ratings to junk-bond status 
unless California officials acted immediately to raise rates and restore the 
utilities to liquidity. 


On Thursday, the California Public Utilities Commission agreed rate hikes 
were needed. 


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


But the commission deferred a final ruling on rates until Jan. 4, pending 
hearings on the matter scheduled for next week. 


The utilities welcomed the possibility of a rate hike, but expressed concerns 
that the commission hadn't acted decisively enough. 


"This is a significant change in the commission's approach," said PG&E Corp. 
spokesman Shawn Cooper. "The real question is whether the action they are 
taking today will inspire confidence in the financial community to allow us 
to continue to provide power to our customers. Hopefully, the financial 
community will take the commission action seriously enough to wait until Dec. 
27 and 28 to make a decision on our credit rating." 


Southern California Edison said in a statement that it "wished the commission 
had acted more decisively." 


Standard & Poor's wasn't available to comment on how the PUC's action might 
affect its outlook for the utilities. 


Shares in PG&E Corp. and Edison International plunged to 52-week lows 
Thursday ahead of the commission's ruling, which was expected. 

  
     Utilities' Power-Market Losses Continue To Mount  
   

Soaring power costs in supply-short California have produced a political 
crisis in the state, which four years ago led the nation in deregulating its 
electric utility industry. Wholesale electricity for delivery Sunday and 
Monday in the West sold for $200-$400 a megawatt-hour Thursday, about 10 
times its year-ago level. 


The utilities have lost a combined $8 billion since May buying wholesale 
power at such prices, which far exceed the fixed rates they're allowed to 
charge their customers. 


Between one-third and one-half of that figure is offset by profits from power 
plants the utilities still own in the state, but the net losses are 
substantial and mounting. Both utilities have said they soon will become 
unable to continue buying power for their customers if the situation 
persists. 


Southern California Edison, which said this week it won't be able to pay a 
power bill that comes due Jan. 4, said in a statement Thursday that it will 
soon adopt a "cash preservation" plan that could involve layoffs and cuts in 
operations. Company executives were in talks with bankruptcy attorneys 
Thursday to plan their next move, a Southern California Edison executive 
said. 


The utilities' deteriorating creditworthiness has left some generators 
reluctant to supply power to California without guarantees they'll be paid. 
The U.S. Department of Energy has issued an emergency order requiring power 
suppliers in the West to sell uncommitted electricity to California on demand 
until Dec. 28. 


Consumer groups, which say the utilities are overstating their financial 
woes, decried the PUC decision. 


"The most disturbing part is this notion that rate increases are inevitable," 
said Michael Shames, spokesman for San Diego-based Utility Consumers Action 
Network. 


The utilities were seeking rate increases of up to 30%. State officials were 
reluctant to accept anything beyond 10%, an amount analysts said is 
insufficient. 


The commission said it deferred its decision on the matter to create time for 
evidentiary hearings and an independent audit to determine how much of an 
increase is needed. 


Consumer groups, however, were skeptical. 


"It is clearly a sham procedural course that indicates the PUC has something 
in mind to do, but they need to claim they had a public process before doing 
it," said Bob Finkelstein, spokesman for The Utility Reform Network. 


The Cambridge Energy Research Associates said Thursday that California faces 
another three years of high electricity prices and possible blackouts, 
because the state's piecemeal response to the power crisis has discouraged 
the development of new generating capacity. 


-By Andrew Dowell, Dow Jones Newswires; 201-938-4430; 
andrew.dowell@dowjones.com 


(Jason Leopold, Mark Golden and Jessica Berthold contributed to this article.)

 
 

 
   
Article 7   Next Article  Previous Article   Return to Headlines 
 
 
 
 


 
 
SoCal Gas Inventories Low, But Interruptions Doubtful  
By Pat Maio  
 
  
12/22/2000  
Dow Jones News Service  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
Of DOW JONES NEWSWIRES <~> (This story was originally published late 
Thursday.) <~> 
LOS ANGELES -(Dow Jones)- Unlike the almost daily threats of rolling 
blackouts from the electricity industry in California, the possibility of 
natural gas interruptions is unlikely even though reserves are historically 
low, said a company executive of Southern California Gas Co. 
 
  
SoCal Gas is the gas distribution unit of San Diego-based Sempra Energy 
(SRE), and serves 5 million customers. 

Reserves of natural gas stored in four underground rock formations scattered 
throughout Southern California are at lower levels than what SoCal Gas 
normally maintains, said Anne Smith, vice president of customer service and 
marketing at SoCal Gas, in a phone interview with Dow Jones Newswires. 


SoCal Gas entered its winter season on Nov. 1 with 63 billion cubic feet of 
gas in storage, about 30 Bcf less than its previous heating seasons, Smith 
said. 


The lower reserve levels are due to power plants in California siphoning out 
the gas at unprecedented levels, she said. 


The plants burn strictly gas, and are trying to meet the intense electrical 
demand this winter after the state's certain source of power from hydro 
generators in the Pacific Northwest had evaporated. 


Lack of rain in the region this year is to blame for the hydro cutbacks, 
Smith said. 


As well, a cold snap in November, coupled with SoCal Gas's decision to buy 
less gas this past summer for reserves, didn't help matters. 


Smith isn't worried about the lower levels of gas in the company's storage 
areas, which can hold up to 105 Bcf. 


The cold weather in November forced SoCal Gas to pull out of storage about 13 
Bcf in November, leaving a total of 50 Bcf, Smith said. 


The stored gas is purchased as a hedge to protect the company from 
fluctuations in natural gas prices -- which this month have soared to as high 
as $60 per million British thermal units on the spot market. 


For the most part, SoCal Gas imports its gas from out-of-state regions in 
Texas and New Mexico via pipelines owned by El Paso Natural Gas Co. (EPG) and 
Enron Corp.'s (ENE) Transwestern pipeline. 


El Paso and Transwestern are keeping up with demand, and report that their 
pipelines are filled to the near the brim. 


Over the past few weeks, Smith said it is pushing out through its system of 
pipes about 3.45 Bcf to 3.5 Bcf of gas daily, to its customers. 


"The way we see demand breakdown the last couple of weeks is generators using 
about 1 Bcf a day, our core customers (4.8 million) about 1.5 Bcf and our 
non-core" about 1 Bcf, she said. The non-core customers -- which number about 
1,500 in total -- are industrial manufacturers who consume more than 250,000 
therms of gas annually, Smith said. 


In comparison, a home averages about 600 therms. 


Smith's eyebrows have been raised by the rapid consumption of natural gas by 
power plants, which use the commodity to run turbines for electrical 
generation. 


Historically electric power plants have consumed about 300 million to 400 
million cubic feet a day of gas in SoCal Gas' service territory, she said. 


"This is why we are seeing pipelines fuller than usual. There is continuing 
demand by the electric generators," she said. "This is basically an increase 
in demand for gas that has contributed to the national picture of why prices 
(for gas) have gone up this year. Demand has outpaced production capacity," 
Smith explained. 


A growing economy starved for electricity to run its Internet systems or 
manufacturing businesses, have contributed to the reasons why gas prices have 
soared this month, she said. 


Power plant owners have passed along these higher gas costs to the utilities 
where they sell their electricity. 


This is partially why PG&E Corp.'s Pacific Gas & Electric Co. and Edison 
International's (EIX) Southern California Edison face financial insolvency 
today. 


They are having to borrow billions of dollars to pay for this higher-priced 
electricity as part of the state's complex deregulation plan. 


The power plants are owned by out-of-state companies like AES Corp. (AES), 
Calpine Corp. (CPN) and Duke Energy Corp. (DUK). 


The threat of rolling blackouts has several causes. 


Some power plants run around the clock -- gobbling up the natural gas at a 
rapid pace. But others have temporarily been shut down because environmental 
laws prohibit them from emitting certain levels of pollutants annually. 


SoCal Gas has managed to keep its gas costs relatively low by buying gas for 
its core customers on long-term contracts at fixed prices. 


This helps to insulate the company from price spikes on gas delivered to its 
system at the California and Arizona and Nevada borders. 


By buying gas this way, SoCal Gas was able to set a fixed charge of $6.53 per 
MMBTU for its 4.8 million core customers in the month of December. A new 
price is set to be established next week for January. 


"We hope it holds steady in January," said Smith. "We are doing everything we 
can." 


-By Pat Maio, Dow Jones Newswires; 323-658-3776; 


patrick.maio@dowjones.com

 
 

 
   
Article 8   Next Article  Previous Article   Return to Headlines 
 
 
 
 


 
 
S&P:Diverse Holdings Insulate Generators From Calif Risk  
 
 
  
12/22/2000  
Dow Jones Energy Service  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
(This article was originally published Thursday) <~> 
NEW YORK -(Dow Jones)- Independent generators selling power into California 
face "extremely serious counterparty credit concerns," but the threat to 
their financial positions from a default by one of the state's utilities is 
mitigated by their positions in other power markets, Standard & Poor's said 
Thursday. 
 
  
The ratings agency affirmed its double-B-plus corporate credit and senior 
unsecured debt ratings for one of those generators, Calpine Corp. (CPN), and 
indicated that the positions of a number of other generators were similarly 
stable. 

Standard & Poor's, without commenting on ratings, said those generators 
include Dynegy Inc. (DYN), The Williams Cos. (WMB), Reliant Energy Inc. 
(REI), Southern Energy Inc. (SOE) and NRG Energy Inc. (NRG). 


"Each company has a diverse asset portfolio that mitigates exposure to any 
single market, such as California," S&P said. "Standard & Poor's has 
concluded that the developers with merchant exposure to the California market 
have sufficient financial liquidity to sustain long-term disruptions to their 
markets." 


S&P also said the generators have generally incorporated conservative pricing 
assumptions well below California's current market prices. 


The generators' main counterparties in California - PG&E Corp. (PCG) unit 
Pacific Gas & Electric and Edison International (EIX) unit Southern 
California Edison - have lost a combined $8 billion buying wholesale power at 
prices far higher than they are allowed to charge their customers. 


Between one-third and one-half of those losses are offset by the utilities' 
own profits from generating power in the state, but they are still 
substantial and mounting. Both utilities have said they face a serious 
liquidity crisis. 


S&P said Thursday that both companies face imminent default unless California 
officials immediately come up with a way to correct the imbalance between 
their buying and selling price for power, and said it would likely downgrade 
the utilities' debt ratings to junk-bond status even if they avoid 
bankruptcy. 


The California Public Utilities Commission met Thursday and opened the door 
to rate hikes, but deferred a final decision to its Jan. 4 meeting. 


S&P wasn't available to comment on its outlook for PG&E and SCE or the 
generators following the PUC's decision. 


About 1,284 net megawatts of Calpine's total 4,900 net megawatts of 
generation is exposed to California counterparty risk, S&P said. Nonetheless, 
only about $400 million of Calpine's approximate $2 billion revenues for 2000 
have seen exposure to California's energy markets, the ratings agency said. 
Calpine's receivables total only about $75 million, S&P said. 


"The affirmation comes during a period of extremely serious counterparty 
credit concerns for generators selling into the California power markets," 
S&P said of its decision regarding Calpine. 


-By Andrew Dowell, Dow Jones Newswires; 201-938-4430; 
andrew.dowell@dowjones.com

 
 

 
   
Article 9   Next Article  Previous Article   Return to Headlines 
 
 
 
 


 
 
Chapter 11 Filing May Give Calif Utils Breathing Room  
 
Of DOW JONES NEWSWIRES  
  
12/22/2000  
Dow Jones Energy Service  
 
 
 
(Copyright (c) 2000, Dow Jones & Company, Inc.)  
 
  
  
(This article was originally published Thursday) <~> 
By Jason Leopold 
 
  
LOS ANGELES (Dow Jones)--If two of California's largest utilities file for 
Chapter 11 bankruptcy protection, a move they said this week was possible, it 
may give the companies some breathing room to allow for a much needed 
internal reorganization, according to one California bankruptcy attorney. 

"What Chapter 11 ultimately does is it allows a company to reorganize," said 
Larry Peitzman, an attorney with the Southern California-based law firm of 
Peitzman, Glassman and Whegg. "The whole purpose is to come up with a plan to 
allow the company to service and pay back creditors and shareholders as much 
as possible." 


While in bankruptcy, a judge can order the state to raise the utilities 
retail electricity rates if that would help the company generate revenue to 
pay its creditors, Peitzman said. 


Peitzman, who has worked on many large company bankruptcy cases in 
California, said if PG&E Corp. unit (PCG) Pacific Gas & Electric Co. and 
Edison International unit (EIX) Southern California Edison file for 
bankruptcy, the companies will be given an injunction by a court that will 
prevent creditors from seizing the utilities assets, collecting money or 
filing a lawsuit against the companies. 


"Another reason to file for bankruptcy protection is the companies wouldn't 
be forced to pay pre-bankruptcy debts if they have run up enormous bills," 
Peitzman said. 


Executives at both PG&E and SoCal Edison said they may be forced to file for 
bankruptcy protection because of a combined $8 billion debt in excess 
wholesale power costs and the inability under state law to pass those costs 
on to rate payers. However, between one-half and one-third of that money has 
been paid into accounts held by the utilities to collect profits from the 
generators they still own. 


The utilities were hoping for an immediate rate hike Thursday by the state's 
Public Utilities Commission, but commissioners said it would first hold 
evidentiary hearings and conduct an internal audit of the companies. A rate 
increase is still at least two weeks off, the commission said at its meeting. 

  
   Utilities Can Conduct Business While In Bankruptcy  
   

Peitzman said that while in bankruptcy, the companies could operate as a 
"debtor in possession," which means the companies have the authority to 
conduct business as usual without the consent of bankruptcy court. But if the 
companies were to try and secure a loan, the loan would have to be approved 
by a judge. 


Although most Chapter 11 bankruptcy cases "can't survive," Peitzman said, the 
state's two largest utilities - with millions of customers - may be an 
exception. 


"Inevitably they are going to continue to owe money because of the constant 
shortfall they pay in (electricity costs) and what they charge their 
customers," the attorney said. "But the bigger the company, the more likely 
the company will survive. It will be devastating to lose such large 
corporations." 


If the companies fail to survive a Chapter 11 filing, the utilities' assets 
would be liquidated to pay off their creditors, Peitzman said. 


In a Chapter 11 filing, PG&E and SoCal Edison would put their creditors in 
different classes and determine how much under the dollar each one would get 
paid, Peitzman said. 


"It can be as much as possible or less than 100 cents on the dollar," he 
said. 


In addition, any contracts that either companies held before a potential 
bankruptcy filing would have to be honored regardless if the company can 
fulfill its financial obligations to its counterpart, Peitzman said. 


"That's one of the other benefits," he said. "It's called executory 
contracts, which generally means both parties have material operations that 
have yet to be performed. It may be long-term contracts and the company would 
be able to enforce the other part to continue doing business. The other party 
can't refuse to do business because of a stay." 


Bankruptcy can last as long as a judge allows it, Peitzman said, pointing to 
the Eastern Airlines bankruptcy case in the early 1980s which lasted for 
years. 


Neither company has indicated whether it will actually file for bankruptcy, 
but SoCal Edison said in a filing with the Federal Energy Regulatory 
Commission Tuesday that it may not be able to pay its January power bill if 
its retail rates are not immediately raised. 


-By Jason Leopold, Dow Jones Newswires; 323-658-3874; 
jason.leopold@dowjones.com

 
 

 
   
Article 10   Next Article  Previous Article   Return to Headlines 
 
 
 
 
National Desk; Section A  
Trying to Shore Up Utilities, California Plans Rate Increase  
By LAURA M. HOLSON  
 
  
12/22/2000  
The New York Times  
 
 
Page Page 16, Column 1  
c. 2000 New York Times Company  
 
  
  
LOS ANGELES, Dec. 21 -- The California Public Utilities Commission said today 
that a rate increase for consumers was likely and that over the next weeks it 
would inspect the books of the two major utilities to decide how much was 
reasonable.
The move is an effort in part to show Wall Street that California is 
committed to ensuring the health of the state's utilities. 
 
  
On Wednesday, the agency that rates the credit-worthiness of both the Pacific 
Gas and Electric Company and Southern California Edison said that if 
meaningful action was not taken by Friday, the two utilities were headed for 
bankruptcy. The agency is expected to comment on the commission's action 
soon. 

Gov. Gray Davis has been meeting this week with utility executives and 
consumer advocates to come to an agreement on the size of a rate increase. 
Mr. Davis, a Democrat, is also seeking the advice of financial experts, 
including Alan Greenspan, chairman of the Federal Reserve Board, whom he is 
expected to meet with next week. 


Some people close to those discussions suggested that 10 percent would be a 
palatable rate increase, but the utilities are asking for more. The 
commission will hold hearings next week, and just how much consumers will 
have to pay should be decided by Jan. 4. 


Four years ago, California agreed to deregulate its utilities with the hope 
that competition would lower rates for households and businesses. But this 
year, prices for wholesale electricity and natural gas have skyrocketed, 
forcing utilities to incur costs of more than $8 billion that they cannot 
pass to consumers because rates are frozen until 2002. 


In recent weeks, the utilities have tried to make a case that, without rate 
increases, service to consumers is threatened. John Bryson, chief executive 
of Edison International, the parent company of Southern California Edison, 
has taken the unusual step of warning consumers in television and newspaper 
advertisements in Southern California and in Sacramento that blackouts are 
inevitable unless order is imposed. 


In response to the announcement by the commission today, Southern California 
Edison said it expected additional cost cutting and measures to preserve cash 
soon. 


But not all the commissioners believed that today's announcement would be 
enough to placate financial analysts and investors, many of whom buy utility 
stocks because they are perceived to be less risky than, for example, 
Internet stocks. Analysts have recently downgraded the stocks of both Pacific 
Gas and Electric and California Edison, which are trading near 52-week lows, 
over fears about California's energy woes. 


''When I look at the newspapers and peruse the Internet I get the decided 
impression that Wall Street has spoken,'' said Richard Bilas, a commissioner. 
''I don't know if this decision goes far enough.''

 
 

 
   
Article 11   Next Article  Previous Article   Return to Headlines 
 
 
 
 
 
Fitch Comments On California Electric Utilities  
 
 
  
12/22/2000  
Business Wire  
 
 
 
(Copyright (c) 2000, Business Wire)  
 
  
  
CHICAGO--(BUSINESS WIRE)--Dec. 22, 2000--Fitch views the California Public 
Utilities Commission's (CPUC) interim decision to initiate proceedings to 
consider raising retail rates as just one of the steps necessary to salvage 
credit quality for the state's two largest utilities, Southern California 
Edison (SCE) and Pacific Gas and Electric Company (Pac Gas). The CPUC is 
expected to reach a decision on rate increases and recovery mechanisms during 
the first week of January, at which time Fitch will assess the appropriate 
ratings for these companies. The outstanding issue is whether rate increases 
will sufficiently offset high wholesale power prices being paid by the 
companies. 
The companies' securities ratings are likely to weaken, unless 1) full 
recovery is provided for the large monies paid by the utilities above 
existing retail rates and 2) price stability is ensured for the regional 
market. The utilities are unable to tap new credit until the rate decision is 
executed. They do have, however, sufficient cash and existing credit to 
support them through the decision period of the first week in January. If a 
suitable rate structure is passed by the CPUC at that time, the utilities' 
banks would be more likely to consider additional funding. 
 
  
Liquidity will remain strained, however, to the extent that regional power 
prices remain high. While Energy Secretary Richardson has ordered certain 
power producers to sell into the California market, wholesale prices remain 
high and are above retail rates. No additional federal action has been taken. 

The CPUC's decision in early January is not expected to completely resolve 
the utilities' future. Given the large costs incurred and numerous 
constituent groups affected, Fitch envisions a longer-term scenario of 
consecutive rate increases associated with a fundamental overhaul of 
California's power market. In conjunction with the governor's active 
involvement, the California legislature is evaluating potential actions to 
restructure the state's power situation. Legislative action remains possible 
over the next three months, and could impact debt ratings. 


The Rating Watch Negative designation remains in place for Pac Gas, SCE and 
its parent, Edison International. The current ratings are: 

  

Southern California Edison: 


-- First Mortgage Bonds,`A'; 


-- Senior Unsecured Debt,`A-`; 


-- Preferred Stock,`BBB+'; 


-- Commercial Paper,`F2'. 


Edison International: 


-- Senior Unsecured Debt,`A-`; 


-- Preferred Stock,`BBB+'; 


-- Commercial Paper,`F2'. 


Pacific Gas and Electric Company: 


-- First Mortgage Bonds,`A-`; 


-- Preferred Stock,`BBB+'. 


EIX's ratings are also on Rating Watch Negative as approximately half of its 
consolidated cash flow is provided by SCE. Fitch does not rate the securities 
of Pac Gas' parent holding company, PG&E. 


The ratings of San Diego Gas & Electric Company (SDG&E) are not pressured to 
the extent of the utilities described above. Unlike the other utilities, 
SDG&E is operating under a legislatively-imposed rate ceiling for residential 
and small commercial loads. Its legislation also permits a balancing account 
to accumulate uncollected power procurement costs. Less liquidity pressure 
also exists at SDG&E due to its strong financial fundamentals (senior 
unsecured debt rated 'AA-'). Fitch has a Rating Outlook Negative designation 
on SDG&E's ratings due to potential increases in leverage while power 
procurement costs are high. Sempra's ratings (senior unsecured debt rated 
'A') have a stable outlook due to the strong and consistent cash flow derived 
from its regulated natural gas distribution subsidiary, Southern California 
Gas. 


Based in Rosemead, California, SCE is a wholly owned subsidiary of Edison 
International. Pacific Gas and Electric Company is headquartered in San 
Francisco, California. SDG&E and its parent, Sempra Energy (SRE), are based 
in San Diego, California.

 
CONTACT: Fitch Lori R. Woodland, 312/606-2309 (Chicago) Robert Hornick, 
212/908-0523 (New York) 
14:31 EST DECEMBER 22, 2000 
 
 

 
   
Article 12   Next Article  Previous Article   Return to Headlines 
 
 
 
 
 
SCE Reacts to CPUC Interim Decision  
 
 
  
12/21/2000  
PR Newswire  
 
 
 
(Copyright (c) 2000, PR Newswire)  
 
  
  
ROSEMEAD, Calif., Dec. 21 /PRNewswire/ -- Southern California Edison reacted 
to today's California Public Utilities Commission's (CPUC) interim decision 
by stating that it wished the commission had acted more decisively but would 
work with the commission to take definitive action to address the current 
crisis by Jan. 4, 2001. 
The company said it was encouraged by the language in the CPUC's interim 
decision that committed the commission to: <~> " ... take expedited actions 
to fulfill our statutory obligations to <~> ensure that the utilities can 
provide service at just and reasonable <~> rates. In our view, that mandate 
means that we must avoid continuing <~> conditions that may jeopardize the 
utilities' creditworthiness and their <~> ability to continue to procure 
energy on behalf of customers. Therefore, <~> 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. <~> We recognize that this 
will require that we act expeditiously to address <~> the new FERC-imposed 
reality of unlimited wholesale prices." 
 
  
Nevertheless, SCE underscored that any solution to the current crisis 
requires prompt, meaningful and final action by the commission ending the 
rate freeze, providing for the recovery of procurement costs, and increasing 
rates to a level that will restore the creditworthiness of California's 
investor- owned utilities. 

SCE added that it anticipated announcing additional cost-reduction and 
cash-preservation measures in the near term that would be necessary to 
protect the company's financial integrity while maintaining customer service. 


An Edison International company, Southern California Edison is one of the 
nation's largest electric utilities, serving a population of more than 11 
million via 4.3 million customer accounts in a 50,000-square-mile service 
area within central, coastal and Southern California.

 
/CONTACT: Southern California Edison, Corporate Communications, 626-302-2255/ 
19:24 EST  
 

 
   
Article 13   Next Article  Previous Article   Return to Headlines 
 
 
 
 
 
Ambac Financial Group has Insured Exposure to Southern California Edison and 
Pacific Gas & Electric  
 
 
  
12/21/2000  
Business Wire  
 
 
 
(Copyright (c) 2000, Business Wire)  
 
  
  
NEW YORK--(BUSINESS WIRE)--Dec. 21, 2000--Ambac Financial Group, Inc. (Ambac) 
announced today that it has $75.1 million in insured net par exposure 
outstanding to Southern California Edison. 
The bonds are secured by a first mortgage or lien on substantially all of the 
property and franchises now owned by Southern California Edison. Ambac has 
$72.6 million in insured net par exposure outstanding to Pacific Gas & 
Electric. These bonds are also secured by a first mortgage lien. Both 
Southern California Edison and Pacific Gas & Electric have been warned by 
Standard & Poor's that their ratings might drop below investment grade. 
 
  
"The secured nature of our exposure, coupled with the essentiality of the 
services the companies provide, cause us to be confident that the likelihood 
of any permanent material loss is remote," said Robert J. Genader, Vice 
Chairman. "On the other side of the coin, this difficult situation serves as 
a strong reminder as to the value of bond insurance," he continued. 

Ambac Financial Group, Inc., headquartered in New York City, is a holding 
company whose affiliates provide financial guarantees and financial services 
to clients in both the public and private sectors around the world. Ambac 
Assurance Corporation is the principal operating subsidiary of Ambac 
Financial Group, Inc. Ambac Assurance, a leading guarantor of municipal and 
structured finance obligations, has earned triple-A ratings, the highest 
ratings available from Moody's Investors Service, Inc., Standard & Poor's 
Ratings Group, Fitch and Rating and Investment Information, Inc. Ambac 
Financial Group, Inc. common stock is listed on the New York Stock Exchange 
(ticker symbol ABK).

 
CONTACT: Ambac Financial Group, Inc., New York Brian S. Moore, 212/208-3333 
bmoore@ambac.com Website:www.ambac.com 
16:37 EST DECEMBER 21, 2000 
 
 

 
   
Article 14   Next Article  Previous Article   Return to Headlines 
 
 
 
 
 
Ambac Financial Group, Inc. Corrects and Replaces Previous Announcement, 
BW2354, NY-AMBAC-FINANCIAL  
 
 
  
12/21/2000  
Business Wire  
 
 
 
(Copyright (c) 2000, Business Wire)  
 
  
  
Business Editors 
NOTE: The following news release replaces and corrects the 
 
  
previous Ambac Financial Group, Inc. news release, which 

ran earlier Thursday on Business Wire, BW2354 


(NY-AMBAC-FINANCIAL) 

  

NEW YORK--(BUSINESS WIRE)--Dec. 21, 2000-- 


Ambac Financial Group has Insured Exposure to Southern 


California Edison and Pacific Gas & Electric 


Ambac Financial Group, Inc. (Ambac) announced today that it has $75.1 million 
in insured net par exposure outstanding to Southern California Edison. 


The bonds are secured by a first mortgage or lien on substantially all of the 
property and franchises now owned by Southern California Edison. Ambac has 
$72.6 million in insured net par exposure outstanding to Pacific Gas & 
Electric. These bonds are also secured by a first mortgage lien. Both 
Southern California Edison and Pacific Gas & Electric have been warned by 
Standard & Poor's that their ratings might drop below investment grade. 


"The secured nature of our exposure, coupled with the essentiality of the 
services the companies provide, cause us to be confident that the likelihood 
of any permanent material loss is remote," said Robert J. Genader, Vice 
Chairman. "On the other side of the coin, this difficult situation serves as 
a strong reminder as to the value of bond insurance," he continued. 


Ambac Financial Group, Inc., headquartered in New York City, is a holding 
company whose affiliates provide financial guarantees and financial services 
to clients in both the public and private sectors around the world. Ambac 
Assurance Corporation is the principal operating subsidiary of Ambac 
Financial Group, Inc. Ambac Assurance, a leading guarantor of municipal and 
structured finance obligations, has earned triple-A ratings, the highest 
ratings available from Moody's Investors Service, Inc., Standard & Poor's 
Ratings Group, Fitch and Rating and Investment Information, Inc. Ambac 
Financial Group, Inc. common stock is listed on the New York Stock Exchange 
(ticker symbol ABK).

 
CONTACT: Ambac Financial Group, Inc., New York Brian S. Moore, 212/208-3333 
bmoore@ambac.com Website:www.ambac.com 
16:36 EST DECEMBER 21, 2000 
 
 

 
   
Article 18   Previous Article   Return to Headlines 
 
 
 
 
 
Calif. puts IOUs' request for rate hikes on hold  
 
 
  
12/11/2000  
Megawatt Daily  
 
 
 
(c) Copyright 2000 Pasha Publications, Inc. All Rights Reserved.  
 
  
  
Pacific Gas and Electric (PG&E) and Southern California Edison (SoCalEd) were 
disappointed Thursday in their bid to gain permission for a rate increase to 
go into effect Jan. 1.
State regulators denied the utilities' request that they take immediate 
action to approve the rate increases, saying that the requests are 
"premature." 
 
  
While regulators did not outright reject the utilities petitions, they 
declined to implement the remedies requested until the cases can be reviewed 
further at a later date. 

The president of the Public Utilities Commission (PUC), Loretta Lynch, issued 
two rulings at the commission's meeting Thursday "suspend[ing] the schedule 
in the Rate Stabilization Plan applications recently filed by [PG&E and 
SoCalEd]." 


Both utilities filed papers separately with the PUC stating that they had 
fulfilled the criteria set for ending a rate freeze imposed on them under 
California's electric industry restructuring statute. The law allowed for a 
transition period, during which the utilities were to pay off any "stranded 
costs" related to investments in generation assets. 


By keeping prices frozen at 1993 levels, legislators and utility 
representatives who expected wholesale power prices would fall, thought the 
measure would give the companies a chance to pay off those costs by a March 
31, 2002, deadline. Instead, prices shot up and the utilities were left with 
the responsibility to supply power to their customers while paying the 
difference between high wholesale prices and lower retail rates. 


Claiming "undercollections" totaling over $5 billion between them, the 
utilities say they want the price freeze lifted and retail rates increased. 
Last month, SoCalEd asked for permission for a 10% increase and PG&E for a 
22% increase in its rates. ADP

 
 

    
 
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