Consumer advocates criticize parent company’s loan deal

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The Associated Press

Consumer advocates are criticizing a deal under which Pacific Gas & Electric’s parent company borrowed $1 billion to pay stockholders and its debts but not any of the billions owed by the utility.

But a spokesman for Gov. Gray Davis said Saturday the deal by the parent company, PG&E Corp., could strengthen the state’s hand in demanding that the parent help the struggling utility.

Davis is negotiating to buy the power lines of California’s three huge investor-owned utility companies, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

Proceeds from the sale could be used to pay down the $13.7 billion that PG&E and Edison say they have lost since last summer because of skyrocketing wholesale energy prices and state caps on what they can charge consumers.

Though the $1 billion deal doesn’t help PG&E as a utility, it could put the parent company on more secure financial ground. And Davis expects PG&E Corp. to help pay off the utility’s debt as part of any deal on power lines.

“The governor has requested a significant contribution from the parent company as part of any deal,” said Steve Maviglio, Davis’ press secretary. “That continues to be the case.”

Nettie Hoge, executive director of the consumer group The Utility Reform Network, also said the corporation’s announcement “should allow the governor to drive a harder bargain in his talks.”

The San Francisco Chronicle, citing unidentified sources, said PG&E is willing to sell the lines but wants more than the $7 billion that Davis is apparently offering. The paper said a sale price of $10 billion has been discussed.

The Chronicle also said Davis has agreed that to get federal approval for the sale, the lines would have to be operated as part of a western regional power grid under the control of the Federal Energy Regulatory Commission.

Maviglio would not comment on the Chronicle story, except to say that the negotiations are “continuing to make progress” and that Davis hopes to have a deal within a month.

PG&E Corp. announced Friday that it borrowed $1 billion from Lehman Brothers and GE Capital Structured Finance Group and used that money and some cash it had on hand to pay $501 million to bondholders, $434 million to other lenders and $116 million in shareholder dividends for the fourth quarter of last year.

“The agreement substantially reduces the likelihood of a bankruptcy filing” by PG&E Corp., spokesman Brian Hertzog said.

However, the credit-rating agency Fitch Inc. said the parent company announcement could mean that it was preparing to file for bankruptcy for the utility, which serves 4.5 million customers in Northern California.

Finch downgraded the corporation’s credit rating to “Company to Watch-Negative.”

Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights, said the corporation’s move shows that the state should offer a bare-bones price for the power lines.

“We’ve been saying all along they ought to bail themselves out, and now we see they can,” he said. “If they can mortgage their assets, they can sell them, or at least give that to their utility, from which they’ve siphoned billions in the last five years.”

Michael Shames, head of the Utility Consumers’ Action Network, said the parent company’s decision to pay $116 million in dividends could make it tougher for Davis to get legislative approval of a deal to buy PG&E‘s lines.

“Legislators are going to look at this … and think this is a waste of money,” Shames said. “This company is hell-bent on destroying itself.”

Assemblyman Fred Keeley, D-Boulder Creek, said the sale would have to be a “very good deal” for the state to win legislative approval.

He said that the longer the negotiations continue, the tougher it will be to keep the utilities solvent without a consumer rate increase.

“If this happens in the next couple of weeks it may be possible to do this under existing rates,” Keeley said. “If it happens in a month or two I think it’s virtually impossible to do it in existing rates.”

The state’s ability to wrap up deals with the utilities could also affect its efforts to sign long-term power buying contracts at reasonable rates with generators that are already owned money by the utility companies.

The long-term contracts first need to be in place before the state can sell $10 billion in bonds. The state treasurer’s office says the earliest that sale could take place is May.

The state is also scrambling to bring an additional 5,000 megawatts of power on line by this summer to avoid a repeat of the rolling blackouts that hit Northern and Central California in January.

To that end, the state is encouraging the construction of new full-use power plants, the development of plants designed for use during periods of peak demand, and the restarting of some plants now off-line, said Winston Hickox, head of the state’s Environmental Protection Agency.

The administration is also counting on a 10 percent cut in electricity usage to get through the summer. Davis announced Saturday that consumption dropped 8 percent in February.

Consumer Watchdog
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