California’s biggest utility files for bankruptcy

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The Associated Press

California’s biggest utility filed for bankruptcy protection Friday, seeking relief from the state’s energy deregulation debacle. The surprise move will not turn out the lights but could mean political and financial turmoil for years to come.

In filing for Chapter 11 protection from its creditors, Pacific Gas & Electric said efforts by Gov. Gray Davis and other state officials to ease the crisis had gone nowhere.

“The regulatory and political processes have failed us, and now we are turning to the court,” said Robert D. Glynn Jr., chairman of corporate parent PG&E Corp. “We expect the court will provide the venue needed to reach a solution.”

The 13 million people served by the utility probably will be among the least affected, since bankruptcy proceedings allow companies to continue operating while they try to solve their financial problems under the supervision of a federal judge.

But lenders, bondholders and wholesale power suppliers may have to write off billions of dollars in losses, and the move could affect more than 20,000 utility employees across Central and Northern California.

US Bank of St. Paul is among a long list of creditors. The utility owes the bank $310 million for pollution control bonds, according to the bankruptcy filing.

The company’s financial reputation also could be damaged for years, making it more difficult to buy power and raise money to upgrade transmission lines and plants.

Davis, who has been accused by fellow Democrats as well as Republicans of not moving decisively to solve California’s power crisis, did not immediately comment on the bankruptcy filing. A spokesman said it was a surprise.

Just a day earlier, Davis delivered his first statewide address on the crisis, and dropped his opposition to higher electricity rates.

After listening to Davis’ speech, however, PG&E executives said they concluded there was little hope of getting relief from the state. PG&E cited “unreimbursed energy costs, which are now increasing by more than $300 million per month,” bad state regulatory decisions and the “unmistakable fact that negotiations with Gov. Gray Davis and his representatives are going nowhere.”

Southern California Edison, the state’s second-largest utility, said it has no immediate plans to seek bankruptcy protection.

The two utilities have been pinched for months by skyrocketing wholesale power prices and the state’s 1996 deregulation law, which bars them from passing those costs on to customers. The two utilities say they have lost more than $13 billion since June and are having trouble buying power and natural gas because of their credit is so poor.

The two utilities had warned for months that they were sliding toward bankruptcy. And the crisis led to rolling blackouts over four days in January and March as electricity supplies dwindled to nearly nothing.

The state has stepped in and spent $4.7 billion since January to buy power for the utilities.

Those efforts could not stave off the biggest rate increase in California history: The state Public Utilities Commission last week approved rate hikes of up to 46 percent for customers of SoCal Edison and Pacific Gas & Electric.

Consumer activists criticized the bankruptcy filing, complaining that the utility’s parent company has been making huge profits during the crisis through other subsidiaries.

“The parent company has $30 billion, much of which it has siphoned out of the utility coffers. It would have bailed the utility out,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

State Sen. Debra Bowen, chairwoman of the Senate Energy Committee, said consumers should see no change in the short run in prices and service.

The crisis is blamed on a number of factors, including the high wholesale prices, a tight supply worsened by scarce hydroelectric power in the Northwest and maintenance of aging California power plants.

Earlier this week, state power grid managers warned that California will see more than a month of rolling blackouts for as many as 5 million people at a time if residents use as much power this summer as last.

Pacific Gas & Electric’s preliminary bankruptcy filing lists its top creditor as Bank of New York, which was owed $2.2 billion as of September.

The utility had run up an $8.9 billion deficit buying electricity as of Feb. 28. A month later, it had $2.6 billion in cash and outstanding bills of $4.4 billion.

PG&E Corp. stock fell more than 37 percent when trading resumed after being halted for more than two hours. The stock closed at $7.20, down $4.18, on the New York Stock Exchange. The 52-week high was $32.50. The stock of SoCal Edison parent Edison International was down $4.39, or 35 percent, to $8.25.

Consumer Watchdog
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