Tuesday October 17, 9:17 pm Eastern Time

Calif. Reconsiders On Utility Fees

By MICHAEL LIEDTKE
AP Business Writer

SAN FRANCISCO (AP) -- California regulators agreed Tuesday to reconsider 
whether utilities can charge customers for the billions of dollars in losses 
that piled up during a summer of soaring electricity prices.

Responding to an emergency petition by Pacific Gas and Electric Co. and 
Southern California Edison Co. [AMEX:SCEq - news], the California Public 
Utilities Commission left open the possibility of reversing five prior 
decisions that blocked the companies from recovering the losses from 
customers.

Regulators turned down the utilities' request for an immediate stay of those 
past decisions, but the mere chance of rate relief may be enough to allow 
PG&E and SoCal Edison to dodge a possible bullet in the stock market.

Had the PUC reaffirmed its previous decision, the utilities probably would 
have had to write off several billion dollars in losses on their financial 
statements in the third or fourth quarter.

Disclosures about the likely losses almost certainly would have been made in 
a third-quarter Securities and Exchange Commission filing due by mid-November.

If the utilities were forced to make grim financial disclosures, ``it would 
be very negative for the stocks,'' said Carol Coale, a utility industry 
analyst for Prudential Securities in Houston. ``Right now, the fate of these 
utilities is in the hands of their regulators and their bankers.''

Coale estimated PG&E faced the prospect of writing off as much as $3 billion 
in losses this year.

PG&E had little to say about Tuesday's decision.

``This is a very serious issue and we want to thoroughly review the material 
before commenting further,'' said PG&E spokesman Ron Low.

Consumer activists blasted the PUC's decision.

``This is a sop to the financial markets,'' said Nettie Hoge, executive 
director for TURN, a San Francisco watchdog group. ``By reopening this case, 
the PUC is unleashing a tsunami of lawyers that is going to come in and argue 
why we should have to pay for these losses.''

TURN plans to release a report Wednesday contending that California utilities 
have generated an additional $18 billion in revenue from deregulation, more 
than enough to offset recent losses.

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer 
Rights, accused the PUC and Gov. Gray Davis' administration of ``caving in to 
the utilities. These companies just want to be able to go to Wall Street and 
say they still have a chance of getting this money back.''

PUC President Loretta Lynch did not return a call seeking comment.

Rosenfield said his group will ask the SEC to investigate whether accounting 
laws require the utilities to write off their losses immediately.

San Francisco-based PG&E says it has lost $2.2 billion this year from a 
freeze on electric rates imposed as part of industry deregulation. 
Rosemead-based SoCal Edison places its losses from the freeze at about $2 
billion.

The utilities are losing money because they must buy the power in the 
wholesale market, where prices have unexpectedly tripled and, at times, 
quadrupled over the past year. The freeze on their customer rates isn't 
scheduled to expire until March 2002.

To insulate themselves, the utilities this week filed a petition with the 
Federal Energy Regulatory Commission seeking to cap wholesale prices for 
electricity at $100-per-megawatt hour. The current cap in California is 
$250-per-megawatt hour.

The chasm between the utilities' wholesale costs and retail rates is hurting 
the companies' standing on Wall Street.

In a filing with the PUC last week, SoCal Edison noted that ``the investment 
community is expressing growing concern'' about the utility's ability to 
recover its losses. SoCal Edison urged regulators to ``take action which 
will, at a minimum, send the right signal to the financial markets.''