San Jose Mercury News
Despite a nearly 30 percent increase in rates approved this week, PG&E says it may have to take state regulators to court because almost all that money is going to the state for its power bills.
In a filing with the federal Securities and Exchange Commission, the utility also said it may have to write off $ 6.9 billion in debt because the increase is not enough and doesn’t cover its past bills.
The move throws a new twist into the path of negotiators struggling to close a bailout deal for California’s utilities. It comes three days after regulators allowed it an average 27 percent rate hike.
That may feel like a lot to consumers, but it isn’t enough to cover its ongoing costs, Pacific Gas & Electric argues. According to the filing, the utility is $ 4.4 billion in debt. It will owe a additional $ 1.5 billion by April 30: $ 550 million to the Independent System Operator, $ 340 million to independent generators and $ 470 million to gas suppliers.
The most immediate impact of writing off $ 6.9 billion would be a large loss in the fourth quarter, crushing earnings and possibly triggering a shareholder revolt that could send the stock of its parent company plummeting again. PG&E insists it’s not walking away from the loss, however, and will continue to fight to recover it.
Southern California Edison has said it may write off charges of $ 2.7 billion and that it plans to make an announcement on Monday regarding filing an extension to for its annual report.
Anxious PG&E creditors stuck with unpaid bills and investments in the strapped utility are studying Friday’s five-page filing. It wasn’t immediately clear whether the $ 6.9 billion write-off — $ 4.1 billion after taxes — makes it more likely for a group of them to push the utility into involuntary bankruptcy.
“We just heard about this and we’ll have to study the effects,” said Richard Wheatley, spokesman for Houston-based Reliant Energy, which has formed a creditors committee with other leading electricity suppliers.
At least one negotiator in Sacramento downplayed Friday’s move as an “accounting thing,” and said it wouldn’t fundamentally change the bailout negotiations.
“It doesn’t change the economics of the situation,” said Joseph Fichera, chief executive of New York-based Saber Partners and a financial adviser to Governor Gray Davis on the utility talks.
Consumer advocates interpreted the filing as PG&E finally behaving like an unregulated company, hailing it as “a very good thing.”
“They finally hit the legal wall,” said Doug Heller, consumer advocate at the Foundation for Taxpayer and Consumer Rights in Santa Monica.
“All talk of a bailout should be off as a result of this filing. Corporations take losses all the time. Businesses have bad years. PG&E had 2 1/2 great years under deregulation. Hopefully the legislators will acknowledge it for what it is.”
PG&E argues that talks with the state about the sale of its transmission lines and other matters have slowed to a crawl. It plans to either appeal the PUC‘s rate-increase order or request it be put on hold, said Greg Pruett, spokesman for the utility’s parent company PG&E Corp. If that fails, PG&E will take the fight to state court, he said. The company wouldn’t say whether the actions move them closer to bankruptcy.
“Currently, we believe it is better to resolve this situation out of bankruptcy, but we are very disheartened at the moment that this hasn’t been resolved,” said Pruett.
Federal accounting rules require the company to write off as a loss those costs that it has no reasonable chance of recovering, PG&E said in its filing. PG&E said that “absent a regulatory or legislative solution that provides for full recovery of such costs,” it will take a charge of $ 6.9 billion for its fourth quarter and fiscal year 2000. It’s delaying issuing its annual financial report for another 15 days, and will file by April 17.
The move is a simple financial reporting necessity and doesn’t mean PG&E is calling off negotiations or giving up on the money, said Pruett. PG&E will continue to recover the money by negotiating with Governor Gray Davis or “other remedies,” Pruett said. He wouldn’t specify what the other remedies are.
The 3-cent rate hike isn’t enough to cover all its ongoing costs — especially not if it has to spend it all paying the Department of Water Resources for the electricity it’s been buying for it, the utility argues. According to Pruett, the PUC on Thursday amended the rate increase from earlier in the week, ordering that all of the 3-cent increase to go toward paying the Department of Water Resources.
“There just is not enough there there,” said Pruett.”What does that leave PG&E to pay the QF’s? What does that leave PG&E to pay for its own generation? What does that leave PG&E to pay its net open position?” The net open position is the amount of last-minute power bought by the Independent System Operation, which hasn’t billed PG&E for it yet.
PUC officials could not be reached for comment.