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Bailout for Calif. power?
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January 5, 2001: 7:05 p.m. ET
Cash-strapped utilities reportedly seek state bond sale; Washington summit set
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NEW YORK (CNNfn) - On the brink of collapse, California's two biggest utilities reportedly are pressing the state legislature to approve a bond sale that would allow them to recoup billions in power costs.
Meanwhile, the publicly traded utilities received more bad news Friday as Wall Street grows increasingly nervous about the their frail health.
The cash crunch for Pacific Gas & Electric Co. and Southern California Edison has only gotten worse in recent days. After the California Public Utilities Commission on Thursday approved a temporary 7-to-15 percent rate increase, a much lower surcharge than the utilities had sought, three major credit rating agencies downgraded the utilities' parent companies.
The rate cuts will make it more difficult for the utilities to raise the billions of dollars they say they need to avoid bankruptcy.
As a further measure to shore up its financial position, SoCal Edison said Friday it will cut 1,450 jobs over the next few months. That brings the total number of workers the Rosemead, Calif.-based electric utility said it will lay off to 1,850 since the crisis began.
"The actions are prudent and necessary steps as we seek to ensure that our limited cash reserves are focused as much as possible on keeping electricity flowing for our customers and protecting public health and safety under extremely difficult and challenging circumstances," said Stephen E. Frank, chairman and chief executive.
 SoCal Edison also lost an appeal Friday seeking to order the Federal Energy Regulatory Commission to set electricity rates in the state. Under a rate freeze enacted as part of California's deregulated electricity market, the companies cannot pass on enough of their soaring wholesale power costs to consumers. But FERC argued the company's request would not fix the price problems.
Citing unidentified sources, Reuters reported that the utilities are quietly pushing Gov. Gray Davis and the state legislature to come up with a plan to issue state bonds that would allow them recoup the extra billions they have spent so far buying power. The bonds would be repaid by a long-term surcharge on monthly electric bills, the sources said.
Separately, California Treasurer Philip Angelides on Friday proposed a plan to create a new financing authority able to issue up to $10 billion in tax-exempt and taxable bonds in an effort to alleviate the power crunch. The bonds would finance new power plants and expand the transmission grid.
While the bonds would not go toward paying off the utilities' debt, it would help bail them out by creating a steady future source of funding to provide adequate power.
The Clinton administration, meanwhile, has arranged an emergency meeting between utility officials and top state and federal officials in Washington on Tuesday to discuss the crisis.
The goal is to "try to create some sort of framework that could help to alleviate the supply crunch that California is now experiencing in energy," said Jake Siewert, White House press secretary.
Credit ratings cut
Wall Street is growing increasingly worried about the outlook for the two cash-strapped utilities.
Moody's lowered its rating on PG&E Corp. (PCG: Research, Estimates), parent of San Francisco-based Pacific Gas & Electric, and Edison International (EIX: Research, Estimates), parent of Southern California Edison of Rosemead, Calif., to the lowest grade above junk bonds on Friday.
On Thursday, Standard & Poor's also reduced its rating on the utilities to a grade above junk. Fitch cut its ratings to junk bond status, or less than investment grade.
In a conference call with investors and analysts Friday, S&P analyst Richard Cortright said the state legislature needs to step in quickly to resolve the credit crisis.
"It is our contention at this point that the legislature is taking the insolvency prospects of the utilities very, very seriously," he said. "The only question is whether there is the political will to do so" on a timely basis, he said.
Meanwhile, sector analysts say the rate increase by the California Utilities Commission is not a permanent fix for the state's beleaguered utilities. David Schanzer, utility analyst with Janney Montgomery Scott, told CNNfn's In the Money that the increase may have come too late. (127K WAV) or (127K AIFF)
 PG&E and Edison stocks finished mixed on Friday, following big plunges Thursday, as investors grew worried that the rate increase was inadequate. PG&E shares edged up 63 cents to $12.63 in late afternoon trading, while Edison stock slipped 44 cents to $10.31.
The jitters over the crisis spread to the banking sector Friday, with Bank of America issuing a denial that its credit quality had been jeopardized by the California utilities situation. Market rumors had surfaced that the troubled utilities had drawn down a line of credit at Charlotte, N.C.-based Bank of America (BAC: Research, Estimates), one of the country's largest banks. The stock lost $3.75 to $47.75.
The power crisis was prompted by the two-year old deregulation of the electricity market in California, the first state to make such a move. But deregulation left utilities paying more for electricity on the wholesale level than they are allowed to charge customers on the retail level. Davis has called deregulation "a colossal failure." 
-- from staff and wire reports
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