USA: UPDATE 2-SoCal Edison in default, bankruptcy looms.
By Jonathan Stempel

01/16/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Jan 16 (Reuters) - In a move that escalates the California power 
crisis, embattled California utility Southern California Edison said on 
Tuesday it has suspended at least $596 million of payments to creditors, 
moving it closer to a possible bankruptcy filing. 
SoCal Edison and No. 1 rival Pacific Gas and Electric Co., a unit of San 
Francisco-based PG&E Corp., have run up billions of dollars of debt this year 
because they are subject to a rate freeze and have been unable to pass on 
their skyrocketing wholesale power costs to consumers.
In mirror filings on Tuesday with the Securities and Exchange Commission, the 
state's No. 2 utility and its parent, Rosemead, Calif.-based Edison 
International, said that to conserve cash SoCal Edison has "temporarily 
suspended" three payments due Tuesday. 
These payments include $230 million of principal and interest on its 5.875 
percent notes, $215 million to the California Power Exchange, and $151 
million to "qualifying facilities," as well as "certain other obligations." 
Failure to make the note payment puts SoCal Edison in default on the notes, 
and on other of SoCal Edison's and Edison International's credit facilities, 
the filings said. The Power Exchange, which arranges sales of power to the 
utilities, can foreclose on collateral the utility pledged, they said. 
SoCal Edison said it had nearly $1.2 billion of cash on hand as of Monday, 
and will run out of cash on Feb. 2 assuming it makes all payments when due. 
"It's an extremely negative sign, and telegraphs the company's intention to 
take this to the mat," said Shawn Burke, head of U.S. investment-grade 
research at Barclays Capital. "Unless the legislature pulls a bill out of its 
hat, giving them virtually all of what they want, it's pretty much over." 
Edison International also said in the filings that it plans to amend the 
articles of incorporation and by-laws for Edison Mission Energy, a 
wholly-owned unit, to protect its low investment-grade ratings. 
Edison International shares traded Tuesday on the New York Stock Exchange at 
$9-1/8, down $1-1/16, or 10.4 percent. PG&E shares fell $1-9/16, or 13.5 
percent, on the Big Board to $10. 
On Jan. 4, the California Public Utilities Commission recommended giving the 
utilities a temporary 10 percent rate hike. The utilities, rating agencies 
and many analysts consider such a hike inadequate. Edison International has 
suspended its dividend, and SoCal Edison plans to slash up to 1,850 jobs. 
DOWNGRADES LIKELY 
The missed payments effectively ensure that credit rating agencies Standard & 
Poor's and Moody's Investors Service will cut at least some of SoCal Edison's 
credit and debt ratings to junk status. 
When a company misses a debt payment, S&P ordinarily does not wait for a 
grace period, if any, to run before cutting its rating for that debt to "D," 
or default. 
A downgrade to below investment-grade status would put SoCal Edison in 
default of some of its credit lines and bank loans, and ratchet up its 
liquidity crunch. 
"It's difficult to lend if there is no short-term solution, much less a 
long-term one," said Burke. 
The utility, as well as Pacific G&E, have been shut out of the short-term 
debt capital markets, and have already drawn on backup credit lines. 
S&P now rates most of SoCal Edison's senior long-and short-term debt 
"BBB-minus" and "A-3," its lowest investment grades. Moody's rates the 
respective debt a roughly equivalent "Baa3" and "Prime-3." The utilities' 
debt trades like junk. 
A third rating agency, Fitch, has already cut SoCal Edison's and Edison 
International's ratings deeply into junk. The bank loans and credit lines 
contain no default provisions triggered by that downgrade, analysts said. 
DELAYING REPORTING RESULTS 
Separately, SoCal Edison and Edison International said they plan to postpone 
release of their fourth quarter and year-end 2000 fiscal results pending 
further developments. 
Analysts said SoCal Edison is acting now to push California legislators and 
regulators to craft a remedy fast. 
"This is a rugged step toward moving this process along, and forcing 
California to do something," said Jerry Bellucci, senior vice president for 
Applied Economic Research, a New York-based energy consulting firm. 
Burke said SoCal Edison will wait as long as possible to file for bankruptcy 
protection.

USA: S&P to issue statement on SoCal Edison Tuesday.

01/16/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Jan. 16 (Reuters) - Credit rating agency Standard & Poor's said on 
Tuesday it plans to issue a statement by 12 P.M. (1700 GMT) about Southern 
California Edison's failure to make $596 million of payments to various 
creditors. 
The announcement came in a voice-mail message left by Richard Cortright, an 
S&P analyst following the California power crisis.
SoCal Edison, a unit of Rosemead, Calif.-based Edison International , said it 
temporarily postponed the payments as it seeks to negotiate a resolution for 
its cash crunch.


USA: Calif. declares highest level power alert.

01/16/2001
Reuters English News Service
(C) Reuters Limited 2001.

SAN FRANCISCO, Jan 16 (Reuters) - California, in the grips of its worst-ever 
power crisis, on Tuesday declared a Stage Three power emergency, the 
highest-level alert, citing a severe shortage of power and natural gas needed 
to generate electricity. 
A spokesman for the California Independent Operator System (ISO), the agency 
that oversees the operation of most of the state's power grid, said it did 
not appear likely they would have to trigger rolling blackouts to relieve the 
heavy load on the system, although the possibility exists whenever a Stage 
Three alert is called.
The ISO spokesman said 10,700 megawatts of generation were off line in 
California for repairs or maintenance. Schools and offices reopened after the 
Martin Luther King Day U.S. holiday on Monday, pushing up demand. One 
megawatt powers about 1,000 homes. 
The spokesman said there was also a shortage of natural gas available in 
southern California, forcing power plants there to switch to oil to run their 
generators. About one-third of all California power is produced at gas-fired 
plants. 
California has declared a statewide Stage Three alert only twice before, but 
each time narrowly averted rolling blackouts as emergency supplies were made 
available from neighboring states. 
.
Only 54% of Californians Feel That There Is an Energy Crisis

01/16/2001
PR Newswire
(Copyright (c) 2001, PR Newswire)

Knowledge Networks Unique Poll Finds Majority Expect Even More Increases 
From the CPUC.
MENLO PARK, Calif., Jan. 16 /PRNewswire/ -- The energy crisis, which is 
dominating media coverage, paralyzing state government, and prompting 
industry to consider moving operations elsewhere, is causing less concern 
among average California citizens. Results from a recent survey conducted by 
Knowledge Networks using its unique population projectable Web-enabled panel, 
show that just 54% think the current situation is a crisis -- 21% don't 
believe that there is a crisis and 25% don't know. 
However, California citizens are losing confidence in the system that 
controls electric power in the state. -- 80% believe the CPUC will extend the 
recent temporary rate increase 
given to PG&E and Southern California Edison beyond the 90 day limit 
-- 75% expect an additional rate increase once the 90 day period is over 
-- 14% are positive about electricity deregulation 
-- 61% support reconsidering deregulation 

In addition to attitudes about changing deregulation, Californians were 
surveyed about an extensive range of proposals for dealing with the energy 
situation. People were asked the questions in the same manner as the various 
proposals have been summarized in the media reports. This may account for the 
high support received on a couple of the proposals. For example 90% of the 
respondents approved the Governor's suggestion to, "add new power generation 
plants within California and make existing plants more efficient." The 
proposal as worded doesn't distinguish between adding new plants or making 
existing plants more efficient or some combination thereof. Critics note that 
in the past Californians have been hesitant about power plants being built in 
their own communities. Among the other proposals, Californians are most 
supportive of: 
-- 76% Federal limits on the amount that electricity suppliers can charge 
for wholesale energy sold to California utilities 
-- 59% Incentives for reducing electricity usage by 8% 
-- 57% Creating a state power authority to take over existing plants and 
speed up the building of new power plants 

Attitudes towards the two largest investor owned utilities, PG&E and Southern 
California Edison are noticeably split. 41% find the explanations about the 
crisis given by the utilities to be believable, while an equal percentage 
(42%) don't believe them. With regards to the possibility of going bankrupt, 
46% think that it is somewhat likely that the two utilities will be forced to 
declare bankruptcy if they don't receive outside help. 70% think that the 
state and or Federal government should help prevent bankruptcy. 
While just over half think that the electricity situation is a crisis, there 
are clear signs that people take the situation seriously. When asked about 
actions they have taken to reduce their electricity usage a majority report 
taking basic steps like shutting off lights, reducing the temperature, and 
cutting back on holiday lighting. 
Looking forward, Californians will be replacing less efficient lighting and 
taking other steps to make their homes more efficient. 11% state that they 
will likely switch to another electricity supplier. 
A full release including data tables is available at: 
www.knowledgenetworks.com/press. The survey was completed by 529 California 
head of household members of the Knowledge Networks panel, between Tuesday 
January 9 and Thursday January 11, 2001. The margin of error for results 
based on the total sample is plus or minus 4.4 percentage points. 
About Knowledge Networks 
Knowledge Networks' revolutionary single-source marketing information system 
provides continuing insights about consumers' opinions, attitudes, activities 
and behavior. Knowledge Networks is the first to combine traditional 
statistically valid probability sampling with Web technologies to create a 
panel that is representative of the U.S. population. The company equips all 
panel households with interactive TV and Internet access enabling it to 
collect a wealth of information with unusual speed. 
Knowledge Networks, a privately held company, was founded in 1998 by two 
Stanford Political Science Professors, Norman Nie and Douglas Rivers. 
Knowledge Networks serves clients nationally from seven offices: Boston, 
Chicago, Cincinnati, New York, Fairfield CT, Washington DC, and its 
headquarters in Menlo Park, California. 
For information on Knowledge Networks, please visit its Website, 
www.knowledgenetworks.com.

Southern Calif Edison Projects Will Be Out Of Cash Feb 2

01/16/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

WASHINGTON -(Dow Jones)- Southern California Edison, a subsidiary of Edison 
International (EIX), said it will be out of cash on Feb. 2 based on its 
current cash flow forecast, according to a Form 8-K filed Tuesday with the 
Securities and Exchange Commission. , Southern California Edison had cash 
reserves of about $1.2 billion, according to the filing. 

08:49 AM
Southern California Edison said it estimates it has a $215 million payment 
due to the California Power Exchange Tuesday, $259 million in payments to 
qualifying facilities due through Jan. 31, a scheduled interest payment of 
$230 million on maturing 5.875% notes due Tuesday and $255 million pyaments 
for commercial paper due through Jan. 31. 
The company also has total expenses for energy delivered as of Monday, but 
not yet paid for, of $1.54 billion. 
However, Southern California Edison states that due to a "significant lag 
time" between the delivery of energy and the final billing, the actual 
expenses through Monday can't be determined at this time. 

Southern California Edison said that in an attempt to conserve cash it has 
"temporarily suspended" payment of $230 million of principal and interest on 
its 5.875% notes due Jan. 16, $215 million due to the California Power 
Exchange due Jan. 16, $151 million due to certain qualifying facilities as 
well as certain other unnamed obligations. 
As reported, a company representative told Dow Jones Newswires Monday that 
the company might not be able to make the payment to bondholders. 
According to the company, failure to pay the notes when due constitutes a 
default, allowing the noteholders to exercise remedies available to them. 
Failure to make the payment on the notes also constitutes a default under 
Southern California Edison's credit facilities, entitling the lenders to 
exercise certain remedies. 
If the company doesn't cure or waive the defaults within a specified time 
period, the defaults may trigger defaults on all outstanding series of the 
company's senior unsecured notes and subordinated debentures. 
Failure to make the payment to the California Power Exchange constitutes a 
default under the agreement, allowing the exchange to foreclose on collateral 
pledged by the company. 

According to the filing, Southern California Edison is attempting to avoid 
bankruptcy and intends to pay all of its obligations once a solution to the 
current liquidity crisis has been reached. 
However, the company warns that it's possible that it could be forced into 
bankruptcy. 
Based on the ongoing "uncertainties," Southern California Edison and Edison 
International intend to postpone releasing their financial results for the 
fourth quarter and year-end 2000 "pending further developments in federal and 
state regulatory proceedings, judicial proceedings, legislative enactments 
and other efforts to resolve the current energy crisis," notes the filing. 

Southern California Edison said in the filing that as of Dec. 31, the 
difference between the cost of supplying electricity to customers and the 
amounts received from customers reached $4.5 billion and "is continuing to 
increase." 
As reported, because of liquidity and other problems, the company has no 
unused borrowing capacity under its existing credit facilities, and it's been 
unable to arrange any additional facilities. In addition, the company is 
unable to issue commercial paper or access the capital markets on "reasonable 
terms." 
On Jan. 4, the California Public Utilities Commission authorized a surcharge 
for 90 days in an attempt to help Southern California Edison as well as PG&E 
Corp. (PCG), which is also undergoing severe liquidity problems. 
Southern California Edison said the rate increase provides "no real relief" 
and will increase revenue by about $65 million a month during the three 
months the surcharge is in effect. 
Edison International is an energy holding company. Southern California Edison 
provides electricity to people in California. -Todd Goren; Fed Filings/Dow 
Jones; 202-628-9782

Calif Gov Could Stymie Solution To Crisis -FERC's Hebert

01/16/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

(This article was originally published Monday) 
By Bryan Lee 
Of DOW JONES NEWSWIRES 

WASHINGTON -(Dow Jones)- High-level talks over the weekend on a plan to 
rescue California's troubled two largest utilities and keep power flowing to 
customers have brought participants no closer to a solution, sources involved 
in the discussions said Monday.
And as events Tuesday are expected to push the state's financially ailing 
electric utilities closer to bankruptcy, responsibility for the potential 
meltdown rests squarely with California Gov. Gray Davis, a key federal energy 
regulator said Monday. 
"You've got a governor who cares more about being on a nighttime news show 
than he does about fixing the problem in California," said Curtis Hebert, a 
Republican on the U.S. Federal Energy Regulatory Commission. 
Hebert criticized Davis, a Democrat, for his refusal to swallow the bitter 
financial medicine needed to rescue the state's flawed power market 
restructuring initiative. 
Hebert's comments echo those voiced privately by industry officials and 
Clinton Administration officials involved in unprecedented discussions 
brokered by the White House since Tuesday. 
The talks are designed to reach agreement on a plan that will allow the 
state's utilities to continue purchasing power for their retail customers, 
despite a liquidity crunch brought about by the state's power market 
restructuring effort. 
Broadly, the proposed deal involves having California's Department of Water 
Resources enter into long-term power sales contracts on behalf of the 
utilities. This would end the utilities' reliance on volatile spot markets 
for power purchases. 
In return, power generators are to grant some form of "forbearance" for the 
money they are owed while the forward contracts are ironed out. 
But throughout seven days of negotiations, Davis has refused to consider 
raising state-protected retail rates and has resisted calls for the state to 
issue credit guarantees for the utilities. In the meantime, Davis has 
insisted that power suppliers agree to sell the state power under long-term 
contracts at rates generators say is below their cost of production. 
Unless Davis backs down, no rescue package can be struck, some people close 
to the negotiations say. 
"Everybody's still trying to talk, (but) now it's spinning out of control," 
said a person involved in the discussions. 
A person representing power marketers and familiar with the status of the 
talks: "I don't see any great cause for optimism - particularly when I hear 
some of the things that Davis's office says." Governor's Office Rejects Talk 
Of No Progress 

A spokesman for the governor rejected the characterization that the talks 
were stymied. 
"People are working and moving forward," said Steve Maviglio, the governor's 
spokesman. "If they weren't closer (to an agreement), they wouldn't still be 
talking. To send a message to the markets that there's not progress here is 
irresponsible." 
Draft legislation to be unveiled Tuesday at the state Legislature will hold 
up the governor's end of the deal, Maviglio said. 
The legislation will give the state the authority to purchase power on behalf 
of the utilities, and the structure of the long-term contracts will give the 
utilities the ability to pay down the billions in uncollected power costs 
they have accumulated to date, he said. 
The utilities - Edison International's (EIX) Southern California Edison Co. 
and PG&E Corp.'s (PCG) Pacific Gas & Electric Co. - say they have no cash on 
hand and have been squeezed out of capital markets after hemorrhaging some 
$12 billion buying high-cost wholesale electricity and selling it for a 
considerable loss under state-mandated frozen retail rates. 
Southern California Edison has a multimillion-dollar bill due Tuesday for 
power purchases made in November and no cash on hand. Pacific Gas & Electric 
says it can squeak by until early February, but obtained approval from 
federal regulators on Friday for a corporate restructuring that will help 
shelter its successful unregulated business units should the utility unit 
files for bankruptcy. 
Developments could come fast and furious if financial markets open Tuesday 
with no deal struck. 
Wall Street credit ratings agencies have warned they will downgrade the 
utilities' debt to speculative, or junk-bond, status if a solution isn't 
reached soon. And various entities are expected to file emergency petitions 
with the Federal Energy Regulatory Commission to ensure that power keeps 
flowing to the state despite the utilities' inability to purchase power for 
their retail customers. 
According to sources familiar with the discussions, one filing would allow 
the Department of Water Resources to purchase wholesale power on behalf of 
the utilities, while another would give Southern California Edison more time 
to make good on amounts owed power suppliers. 
Whether the regulatory filings buy the utilities time to avoid bankruptcy 
remains to be seen. 
"They've got to make some real decisions here," FERC's Hebert said of the 
stymied negotiations with Davis. "If (Davis is) not willing to make those 
decisions, then certainly I think he's to blame." 
-By Bryan Lee, Dow Jones Newswires, 202-862-6647, bryan.lee@dowjones.com

Houston power supplier threatens to bankrupt California utilities

01/16/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

SACRAMENTO, California (AP) - In the midst of California's struggle to obtain 
more regional power, a major electricity supplier is threatening to take the 
state's two largest utility companies to bankruptcy court. 
If Southern California Edison and Pacific Gas & Electric do not make payments 
due this week, officials from Houston-based Dynegy Inc. said Monday they will 
have no choice but to take them to court.
"If we can't get this bill through in the next two days, this will start to 
unravel," Stephen W. Bergstrom, president of Dynegy, told the Los Angeles 
Times. "When and if they (Edison) default on Thursday, it puts us in a 
position where we have to take them into bankruptcy, and I'm sure others will 
be right beside us." 
Bergstrom refused to say how much money Dynegy is owed but said if any three 
creditors jointly petitioned the court, it would be enough to start 
involuntary bankruptcy proceedings. 
State and federal lawmakers are trying to craft a temporary solution to 
California's power crisis. Officials met this past weekend with electricity 
wholesalers to negotiate a plan by California Gov. Gray Davis for the state 
to buy electricity and sell it to utilities. That plan was to be introduced 
Tuesday in the Legislature. 
The state believes it can negotiate better prices than the utilities, which 
have seen their credit ratings plummet in recent months. PG&E and SoCal 
Edison say they have lost more than dlrs 9 billion because of wholesale price 
increases and the state's 1996 deregulation law that froze rate hikes. 
Electricity sellers have been increasingly reluctant to supply California 
because of the utilities' dwindling finances. 
Edison owes a major payment Tuesday to the Power Exchange, which manages the 
wholesale buying and selling of electricity. Power industry sources estimate 
the bill to be more than dlrs 150 million but believe the company has the 
resources to make the payment. Technically, SoCal Edison will not be in 
default on the payment until Thursday. 
Company officials refused to comment on their obligations to the Power 
Exchange. They said they would disclose details Tuesday in a filing with the 
federal Securities and Exchange Commission. 
PG&E officials said Monday that they would pay their dlrs 40 million bill due 
this week. The utility has approximately dlrs 500 million in cash, a 
spokesman said, with a bill for about dlrs 580 million due Feb. 1. 
On Monday, the state's power reserves shrank to nearly 5 percent even though 
many businesses were closed for the holiday. 
Dynegy purchased three Southern California power plants when SoCal Edison, 
PG&E and San Diego Gas & Electric auctioned off assets as part of 
deregulation. The company's plants can generate enough electricity to supply 
2.8 million homes. 

California Utility's Power Supply Could Be Cut
By John R. Emshwiller and Mitchel Benson
Staff Reporters of The Wall Street Journal

01/16/2001
The Wall Street Journal
A4
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Today could prove to be a critical day in California's electricity crisis as 
one of the state's biggest utilities, Southern California Edison Co., faces a 
possible cutoff from power supplies. 
Edison, a unit of Edison International Inc., is considering not paying a big 
wholesale electric-power bill, believed to be in the hundreds of millions of 
dollars, that comes due today from the California Power Exchange, a person 
familiar with the matter said. Edison is suffering from a cash shortage 
brought on by the skyrocketing cost of wholesale power. An Edison spokesman 
declined to comment yesterday.
A spokesman for the Power Exchange said Edison could face immediate cutoff 
from further purchases via the exchange if it doesn't pay its bill. However, 
the exchange was talking with various parties in an effort to avoid such a 
suspension. "We are still in negotiations. We don't know what we have yet," 
the spokesman said. 
The Power Exchange, created as part of California's utility-deregulation 
effort, serves as a crucial middleman between utilities and power generators. 
Under deregulation, Edison obtains much of its daily electricity through the 
exchange. An inability to buy through that venue could leave Edison and its 
4.2 million customers in Southern California facing power shortages and 
possible blackouts. 
Adding to the financial uncertainty surrounding Edison, Dow Jones Newswires, 
citing a senior Edison executive, reported late yesterday that the company 
has a $200 million bond payment due today that it also might be unable to 
pay. 
Meanwhile, state officials met through the Martin Luther King Jr. holiday in 
Sacramento in a frantic effort to resolve the power crisis. Within the next 
24 to 48 hours, Wall Street and the energy producers "need a precondition, a 
signal that we're serious and heading in a direction they're comfortable 
with," said one lawmaker involved in the talks. 
One idea proposed by Gov. Gray Davis and others is to have the state use its 
financial resources to purchase power from electricity producers for resale 
to the financially beleaguered utilities. "We don't have to go into business 
tomorrow as the purchaser," the lawmaker said. "We simply have to make a 
strong enough and substantive enough statement coming out of the state 
capitol so that the creditors and [energy] producers will exercise 
forbearance." Such forbearance would give utilities more time to pay billions 
of dollars of wholesale power costs that they have accrued but haven't been 
able to collect from customers through rates. 
Several people involved in yesterday's talks said they were optimistic that 
some plan would be ready to present to a legislative committee today for 
public hearings and, potentially, a vote in the Assembly. They acknowledged 
that as of late yesterday that no agreements had been reached with 
electricity producers on such crucial issues as the price to be charged for 
the electricity and the length of the supply contracts. California's 
Legislature has been called into special session by Gov. Davis to consider a 
series of bills aimed both at improving the state's electricity supply and at 
curtailing demand. 
Edison's move on its Power Exchange bill could compress the timeframe for 
action. Many observers believed the utilities had sufficient cash to see them 
through early February, when another round of big wholesale electric bills 
comes due. 
Last weekend, the Pacific Gas & Electric utility unit of PG&E Corp. 
reiterated its belief that it has sufficient cash to pay its expenses until 
early February. In recent weeks, Edison and PG&E have said they are being 
pushed to the brink of insolvency and bankruptcy-law filings because of 
skyrocketing wholesale electricity costs. 
Some observers speculate that if Edison doesn't pay its Power Exchange bill, 
it could be a signal that the utility is moving closer to a bankruptcy-law 
filing. Richard Cortright Jr., a Standard & Poor's director, said an analysis 
by the credit-ratings concern indicates that Edison has enough cash to pay 
the Power Exchange. Preserving cash by not paying bills "is often a tactic a 
company uses before bankruptcy," Mr. Cortright said. 
S&P and other ratings concerns have been closely following the California 
electricity crisis, because of the impact it could have on billions of 
dollars of utility bonds outstanding. The ratings concerns have severely 
downgraded both Edison and PG&E bonds. The agencies generally haven't dropped 
those bonds into "junk- bond" status, which is below investment grade. Such a 
downgrade would put the utilities into various financial defaults that could 
exacerbate their acute cash problems. 
While the California situation is "incredibly fluid," any failure by Edison 
to pay its power bills "paints a very, very dire picture," Mr. Cortright 
said. 
To better understand the current picture, state legislative leaders have 
recruited several legal and financial advisers. Among them is David Wiggs, 
managing director of Lido Capital in Newport Beach, Calif., a financial 
adviser to the utility and telecommunications industries. Mr. Wiggs, who has 
been hired to advise the newly created Assembly Committee on Energy Costs and 
Availability, is a retired chairman of the utility El Paso Electric Co. Mr. 
Wiggs, in turn, has hired to assist him Robert D. Albergotti and Stacey 
Cowand Jernigan, members of the Dallas law firm of Haynes & Boone. Two 
investment advisers from New York investment bank Credit Suisse First Boston 
Corp. are advising legislators on a pro bono basis. 
As regulators, politicians and executives struggled to come up with fixes, 
California itself struggled through another day of tight power supplies.

Metro Desk
Power Firm Demands Utilities Pay Bills Now Electricity: Supplier says it will 
haul Edison and PG&E into bankruptcy court if money isn't forthcoming. 
Lawmakers scramble for a solution.
NANCY VOGEL; MIGUEL BUSTILLO
TIMES STAFF WRITERS

01/16/2001
Los Angeles Times
Home Edition
A-1
Copyright 2001 / The Times Mirror Company

SACRAMENTO -- Increasing the pressure on state lawmakers to craft at least a 
temporary solution to California's power crisis, a major power supplier 
threatened Monday to force Southern California Edison and Pacific Gas & 
Electric into bankruptcy court unless the utilities pay their bills due this 
week. 
The move by Dynegy Inc. of Houston upped the ante on a day when legislators 
huddled with financial experts and lawyers but reached no agreement on a 
mechanism for the state to buy electricity for Edison and PG&E at rates far 
lower than they pay now--allowing the beleaguered utilities breathing room to 
restructure their massive debts.
"If we can't get this bill through in the next two days, this will start to 
unravel," said Stephen W. Bergstrom, president of Dynegy. "When and if they 
[Edison] default on Thursday, it puts us in a position where we have to take 
them into bankruptcy, and I'm sure others will be right beside us." 
Bergstrom refused to say how much money Dynegy is owed, but said if any three 
creditors jointly petitioned the court, it would be enough to start 
involuntary bankruptcy proceedings. 
Under a plan outlined this weekend by Gov. Gray Davis after marathon 
bicoastal negotiations, the state would use its excellent credit rating to 
purchase electricity and then resell it to debt-hobbled utilities. 
The state Department of Water Resources has stepped in on an emergency basis 
to buy power to prevent blackouts, but Davis' plan would, overnight, make 
California the biggest single buyer of electricity in its own market. 
Legislators generally backed the need for the state to buy power, but there 
has been no agreement on two key issues: the price and the duration of the 
contracts. The price needs to be low enough so that utilities, with the rates 
currently in place, can save enough to restructure their debts--but high 
enough so that the power producers will go along with the plan. 
With attention focused on how Wall Street will view the tenuous agreement 
when markets reopen after the weekend, legislators were fighting multiple 
deadlines in trying to make good on the weekend promise to pass a bill by 
today. 
Edison owes a major payment today to the Power Exchange, the market created 
in 1998 under deregulation. 
Power industry sources say they believe Edison has the cash to make the 
payment, estimated at more than $150 million, but that the firm could play 
high-stakes political poker by delaying payment to increase pressure on 
lawmakers. Technically, Edison will not be in default on the payment until 
Thursday. 
Edison officials refused to comment on the negotiations with state leaders or 
the firm's obligations to the Power Exchange. They said they would disclose 
details today in a filing with the federal Securities and Exchange 
Commission. 
PG&E officials said Monday that they would pay their $40-million bill due 
this week. The utility has approximately $500 million in cash, a spokesman 
said, with a bill for about $580 million due Feb. 1. 
Electricity sellers have been increasingly reluctant to supply California 
because of the deteriorating financial condition of the utilities. 
The volume of electricity traded in the Power Exchange has dropped by roughly 
75% in the last month. Grid operators have struggled daily to buy enough 
power to balance flow on high-voltage wires and prevent blackouts. 
On Monday, a holiday during which many offices and businesses were closed, 
the state's power reserves shrank to nearly 5%. 
Legislators, convened in an emergency session on the state's energy crisis, 
quickly seized on Davis' idea. 
"We're working here around the clock, doing everything we can," said Assembly 
Speaker Bob Hertzberg (D-Sherman Oaks) during an afternoon break in talks 
among a half-dozen Republican and Democratic lawmakers. Also involved were 
the state's finance director, a bankruptcy lawyer, and two utility experts 
from Credit Suisse First Boston. 
Their purpose was to craft a skeleton of the legislation that California will 
need to implement Davis' proposal and have it passed by at least one house of 
the Legislature today. 
Senate leader John Burton (D-San Francisco) has said that while the 
Legislature works, power generators should be willing to give utilities 
leeway on bills coming due. 
But that's unlikely unless the Legislature acts quickly, said Bergstrom of 
Dynegy. His company purchased three Southern California power plants when 
Edison, PG&E and San Diego Gas & Electric auctioned off assets as part of 
deregulation. Dynegy's plants can generate enough electricity to supply 2.8 
million homes. 
"We're just not going to do that," Bergstrom said, "because the stakes are 
too high." 
He met with Davis and California lawmakers in Washington, D.C., last Tuesday 
evening and spoke to them again through a bicoastal video conference 
Saturday. The governor has been lobbying power plant owners to sign long-term 
contracts with the utilities at roughly 5.5 cents per kilowatt-hour--well 
below the recent market rate of 30 cents. 
Power plant owners call that price unrealistic unless the contract lasts at 
least six or seven years, allowing them to recoup money later, when the cost 
of natural gas is expected to fall and make electricity cheaper to generate. 
Contract details do not matter, Bergstrom said, so long as the utilities are 
so debt-ridden as to be unworthy of credit. That's why the state needs to 
step in to buy power and guarantee payment, he said. 
But some lawmakers have downplayed the urgency. 
Burton has said it is more important to get the details of a bill right than 
to move quickly. 
To insert the state as a go-between in California's electricity market raises 
many complex financial and political issues. 
Even lawmakers who support helping the utilities insist that consumers get 
something in return. 
Stock options, ownership of utility transmission lines or takeover of 
hydroelectric power plants--a cheap source of power that affects the 
environmental health of many Sierra Nevada rivers--are among the assets the 
state should consider, Burton said. 
Hertzberg spokesman Paul Hefner said lawmakers have included bankruptcy 
lawyers and financial experts not solely to impress Wall Street, but also 
because they realize they are entering a realm they know little about. 
He said politicians clearly want to "send a message to financial markets" 
that they are working with industry experts when considering the consequences 
of their legislation. 
But he said their main goal is to get technical advice from someone who is 
not a bureaucrat and is not employed by a power firm.

Metro Desk
Court May Decide if Power Users Pay More Court: Edison calls ruling that it 
can pass on costs a victory. The PUC says it's just the first of many steps 
in the battle over setting rates.
HENRY WEINSTEIN
TIMES LEGAL AFFAIRS WRITER

01/16/2001
Los Angeles Times
Home Edition
A-15
Copyright 2001 / The Times Mirror Company

A federal judge's recent ruling that Southern California Edison Co. has the 
right to pass on to consumers its costs of acquiring power on the wholesale 
market does not mean that ratepayers will have to bear any of those costs 
soon. 
But the decision nonetheless provided immediate benefits to the beleaguered 
utility--primarily making the company look more financially secure and 
credit-worthy because the ruling could pave the way for a recovery of more 
than $2 billion for Edison.
Consequently, attorneys and spokesmen for Edison trumpeted the ruling of U.S. 
District Judge Ronald S.W. Lew as a significant victory. Attorneys for the 
California Public Utilities Commission played down the decision's 
consequences, saying it was merely the first skirmish in a long process. 
Regardless of how significant Lew's ruling was, the legal battle clearly has 
important ramifications, and they go beyond Edison's financial health. 
Ultimately, the case, titled Southern California Edison vs. Loretta M. Lynch 
(president of the PUC), may determine whether Edison's customers have to pay 
more for electricity. 
Moreover, the case--and a virtually identical one filed by Pacific Gas & 
Electric Co. in Oakland federal court--may clarify whether there will be any 
change in the traditional demarcation of regulatory authority over utilities 
as a result of deregulation. 
Historically, the federal government has regulated wholesale power rates and 
state governments have regulated retail rates, those charged to consumers. 
One of the key issues in the Edison and PG&E cases is the utilities' 
contention that a PUC-imposed rate freeze violated the traditional 
demarcation by indirectly interfering with federal regulatory authority. 
Both companies say that they have been prevented from recovering their 
wholesale purchase costs because of the rate freeze imposed by the PUC as 
part of the massive utility deregulation law enacted in 1996, known as AB 
1890. 
Unless the issues are resolved by legislative action on the state energy 
crisis, it seems likely that the two suits will wind up in the U.S. 9th 
Circuit Court of Appeals and perhaps ultimately the U.S. Supreme Court. The 
California Public Utilities Commission and the Utility Reform Network, a 
consumer advocacy group, are opposing the companies in court. 
The 1996 deregulation law provides that the California rate freeze lasts 
until March 31, 2002, or until what are known as a utility's "stranded costs" 
(in essence, certain assets such as nuclear power plants that were overvalued 
in 1996) are recovered. The PUC determined last year that San Diego Gas & 
Electric, the state's other major privately owned utility, had recovered its 
"stranded costs," enabling that company to impose rate hikes. But the agency 
has said that Edison and PG&E are not entitled to take such action yet. 
On Jan. 8, Judge Lew agreed in principle with Edison's contention that the 
Federal Power Act trumps California's 1996 energy deregulation law. 
Lew rejected the PUC's argument that he should dismiss the case because 
retail rates are exclusively a matter of state regulation. The judge also 
rejected the agency's alternative request that he defer a decision for at 
least 120 days while the PUC gathered more facts. The judge said the gravity 
of the situation required immediate action. 
PUC actions "are having devastating effects on [Edison's] current ability to 
obtain financing to enable it to continue to procure wholesale power at 
current prices," Lew said. 
In essence, Lew agreed with Edison's lawyers, Ronald L. Olson and John W. 
Spiegel, that the company is caught in "a vise that threatens to squeeze it 
out of existence." 
"On the one side, SCE has been forced to pay astronomically high prices to 
buy wholesale electricity," the lawyers said in a brief filed in Lew's court. 
The 1996 statute requires SCE "to procure all of the electricity needed to 
serve its 4.3 million retail customers from two wholesale market 
institutions, whose pricing practices are exclusively within the Federal 
Regulatory Commission's jurisdiction. Since last June, the cost of procuring 
electricity through these market institutions has increased nearly 
four-fold," the attorneys said. 
"On the other side, SCE has been unable to recover these expenses through 
retail rates, which are currently frozen under California law." In addition, 
Edison's lawyers maintain that the PUC has interpreted California law "to 
prohibit SCE from recovering these costs, either now or in the future." 
Consequently, Edison has had to buy high and sell low, leaving it with a 
shortfall in excess of $2.6 billion, the company says. 
The PUC counters that a substantial portion of Edison's costs are paid to 
itself from power the company buys from its own plants and that Edison has 
reaped additional billions in the last two years from the sale of certain 
assets. The agency contends that those funds should be available to offset 
the financial problems the company is complaining about. 
The PUC also contends that Edison failed to take other steps that could have 
lowered its costs in acquiring power. 
In addition to the dispute over the facts, there has been a clash over Edison
's contention that California's rate freeze interferes with federal 
regulation of the wholesale energy market. The PUC and the Utility Reform 
Network counter that the freeze is an essential component of the Federal 
Regulatory Commission's approval of wholesale sales. 
The regulatory commission has taken no formal position on the pending 
litigation. However, Douglas W. Smith, the agency's general counsel, sent a 
letter to Edison attorney Spiegel saying that the "filed rate doctrine" 
applies in a situation such as this. The doctrine, according to a 1986 U.S. 
Supreme Court decision, holds that interstate power rates filed with the 
Federal Regulatory Commission or set by it must be given binding effect by 
state utility commissions determining intrastate rates. 
However, Michael Strumwasser, attorney for the consumers group, said the 1986 
Supreme Court decision arose in an entirely different context. He said the 
specific question now at issue--whether the "filed rate doctrine" applies 
when wholesale rates have been set by market forces rather than a regulatory 
proceeding--has never been ruled on by an appellate court. 
Lew made no explicit rulings on the PUC allegations that Edison should have 
offset wholesale payment costs through other revenues. 
However, Lew said the PUC is entitled to present evidence about the prudence 
of Edison's wholesale electricity purchases. Further hearings on that issue 
could determine how much of its costs Edison is entitled to recover. The PUC 
contends that Edison could have made some purchases at lower prices than it 
did. But Edison attorneys counter that this is a disingenuous argument, 
because the PUC has not objected to the prudence of Edison's purchases. 
Indeed, the Edison lawyers say the next phase of the case should be very 
brief because the PUC, in effect, consented to Edison's prior actions. 
Attorneys for the PUC and the consumers group disagree sharply, saying a bevy 
of issues need to be reviewed in detail. There is no timetable for further 
proceedings in the Edison case. The next hearing on the PG&E case is 
scheduled for Jan. 30 in Oakland.

NEWS
Stealthy Deal Protects Profits of PG&E's Parents
Christian Berthelsen
Chronicle Staff Writer

01/16/2001
The San Francisco Chronicle
FINAL
A1
(Copyright 2001)

PG&E Corp. has quietly won approval from federal regulators to restructure 
itself in a way that shields the parent company's profits, and shareholders, 
from the mounting debts of the utility it owns. 
The move appears to allow Pacific Gas and Electric Co.'s parent to record 
substantial profits while maintaining that its subsidiary, which supplies 
power to 4.5 million customers, is teetering on the edge of bankruptcy and 
trying to force ratepayers to pick up the tab.
The corporate restructuring, approved by the Federal Energy Regulatory 
Commission on Friday, came as a surprise to consumer advocates and state 
leaders dealing with the energy crisis -- including Gov. Gray Davis. They 
have been working feverishly the past seven days to construct a deal that 
would alleviate debt pressure on PG&E and Southern California Edison by 
having the state of California buy power and provide it to the utilities at 
cost. 
Steve Moviglio, a spokesman for Davis, said the governor was displeased by 
PG&E's move, although he said it was not likely to derail the state's efforts 
to intervene in the crisis. He also said Davis was "disappointed that FERC 
acted in the middle of the night without notice to all parties." 
Ratepayer advocates and even some state officials have said that any aid to 
the ailing utilities should be offset by the huge profits that PG&E Corp. has 
made during the crisis from electricity generation and trading revenues. The 
money has certainly flowed in the other direction, they argue. In the past, 
PG&E Corp. has used revenues from the utility to pay down corporate debt, pay 
stock dividends and buy assets in other states. 
PG&E Corp.'s action appears to eliminate that possible means of paying off at 
least part of the $2 billion in debt incurred since November by its utility, 
Pacific Gas and Electric Co., as it bought power at prices higher than it can 
legally charge customers. 
"It's certainly a response to them feeling the threat that the holding 
company's going to be held responsible for all this," said Bob Finkelstein, 
an attorney for The Utility Reform Network, an advocacy group. 
Meanwhile, California's energy crisis continued in full force yesterday, as 
the California Independent System Operator issued a Stage Two emergency, 
meaning that demand had reached within 5 percent of the state's electric 
supply, prompting requests to certain large users to shut down and conserve 
power. This occurred despite a national holiday, Martin Luther King Day, on 
which most businesses were closed and demand was forecast to reach about 
30,000 megawatts, a fairly modest number. 
Further, conditions appeared as if they were going to worsen imminently. 
Edison said it will be unable to pay bills coming due today, and PG&E said it 
has only about $500 million on hand to cover what it owes. Bankruptcy filings 
by both utilities appeared more likely. 
State leaders were still in negotiations yesterday to broker a deal in which 
California's Department of Water Resources would step in and buy power on 
behalf of the utilities, who are facing a growing inability to pay for their 
purchases. The talks were reported to be breaking down, however, because 
Davis refused to consider raising California rates or backing utility debts 
with a letter of credit from the state. 
In San Francisco, state Senate President Pro Tem John Burton said legislation 
passed last week by the Assembly will probably make its way to the governor's 
desk by the end of the month. One bill would change the makeup of the boards 
that oversee the state's power market, and the other would prohibit utilities 
from selling off their power-generating assets. 
In the midst of yet another Stage 2 electrical emergency the Democratic 
leader said, "I want the people of California to have long, stable, available 
energy throughout the rest of our lives." 
But in the short term, with the threat of rolling blackouts and urgent 
requests for power conservation, Burton stated the obvious: "Turn the goddamn 
lights off," he said. 
NO CHALLENGES TO RESTRUCTURING 
The Federal Energy Regulatory Commission approved PG&E's restructuring plan 
on a 3-to-1 vote on Friday. It was apparently described in a Dec. 28 public 
notice as a stock transfer, and thus flew under the radar screens of most 
observers. Details of the plan were first reported in the Wall Street Journal 
on Monday. 
Greg Pruett, a spokesman for PG&E Corp., said the intent of the plan was 
merely to allow another unit of the corporate parent, National Energy Group, 
to receive its own credit rating that would be weighed independently of the 
troubled utility. But he acknowledged that all or nearly all of PG&E Corp.'s 
assets outside the utility are held by National Energy Group and that the 
move would reduce the liability for the corporation. 
Although it was unclear whether PG&E informed state leaders of its plans, 
Pruett said the notice of the meeting was publicly available and had at least 
been provided to the Public Utilities Commission. 
In addition to proceeds from the sale of power plants and other revenues that 
PG&E has forwarded on to its corporate parent, the utility has reaped 
windfall profits during the crisis from the generation and sale of 
electricity and has not applied those profits to its own debt. To do so would 
require an accounting rule change by the California Public Utilities 
Commission, but company officials have maintained that should not be done. 
PG&E IN DEBT TO ITSELF 
Critics say that PG&E is its own biggest debtor, with money flying out of one 
pocket and into the other and that nearly half of its debt is owed to itself. 
In the third quarter of 2000, the company reported a 22 percent increase in 
profits, with a net income of $225 million, while saying it expected 
California consumers to eventually pick up the tab for its debt. 
--------------------------------- ON TAP TODAY -- Shortage: Electricity 
demand is expected to grow as Californians return to work from a three-day 
weekend, increasing the likelihood of energy emergencies. -- Talks: Energy 
officials huddle in Washington and Sacramento over Gov. Gray Davis' plan for 
the state to buy energy for the beleaguered utilities. -- Credit: If Wall 
Street doesn't like the plan to rescue the state's ailing utilities, it may 
begin downgrading stock and bond ratings - even to "junk" status. -- 
Payments: Southern California Edison has a multimillion dollar bill coming 
due, but the company says it has no money to pay.