Fitch downgrades credit outlook for California IOUs
  
09/20/2000 
Megawatt Daily 
(c) Copyright 2000 Pasha Publications, Inc. All Rights Reserved. 
The credit rating agency Fitch yesterday downgraded its ratings outlook for 
all three of California's investor-owned utilities (IOUs) from stable to 
negative. 
The company cited high wholesale electricity prices that could contribute to 
a liquidity crunch for the utilities and the uncertainty of California's 
deregulation process in the wake of this summer's market upheavals as reasons 
for the revised outlook. 
"Uncertainty affects all the utilities," a Fitch analyst said. Although each 
of the utilities has slightly different circumstances, there are underlying 
problems impacting them all, the Fitch report says. 
The three IOUs - San Diego Gas and Electric (SDG&E), Pacific Gas and Electric 
(PG&E), and Southern California Edison (SoCalEd) - all face high prices in 
the wholesale market where they must buy power, but are limited in their 
ability to pass on costs to their customers. 
PG&E's and SoCalEd's prices are frozen under the state's restructuring 
legislation for a transition period lasting through March 2002 at the latest. 
SDG&E, which completed the transition period earlier this year, initially was 
able to charge its customers market rates, but had its prices capped 
retroactive to June by state legislation and regulatory orders. 
Under the price controls, the IOUs are unable to cover their immediate costs, 
and the political and regulatory climate has left the question unanswered as 
to if or how the IOUs will be allowed to recover their costs. 
In addition, PG&E and SoCalEd must use the transition period to pay off 
stranded costs through the sale of their generation assets. SDG&E has already 
paid off its stranded costs and was able to charge market rates to its 
consumers until the current price cap went into effect. 
Taking all of these aspects into consideration, Fitch felt the ratings 
downgrade was necessary to reflect the companies' future positions. The 
update is "our indication of where ratings may go," the analyst said. "Over 
the long term there are negative aspects [in the IOUs situations]." 
Still, "these are all high[ly] rated utilities," he said, adding that he did 
not expect the revision to affect the companies' ability to raise money or 
the cost they pay for borrowing. 
Fitch's ratings outlook downgrade mirrors a similar downgrade of the IOUs' 
ratings outlook by Moody's, another credit rating agency, last week. ADP