San Jose Mercury News
In an announcement that infuriated some consumer advocates and lawmakers Friday, PG&E Corp. said it had borrowed $ 1 billion to pay its bills — including a $ 116 million stockholder dividend — but that none of the money will help its deeply indebted utility, Pacific Gas & Electric Co.
PG&E Corp. officials said the terms of the loan forbid them from using any of it to cover the utility’s bills, while requiring them to pay a dividend they had promised and not delivered in the last quarter of 2000. Moreover, they said the deal was essential to protect the parent corporation, which has defaulted on some debts and likely would have done so again soon.
“The defaults created the risk that the corporation might face a bankruptcy,” said PG&E Corp. chairman Robert Glynn and that “would benefit no one.”
Because the utilities can’t afford to buy electricity for their customers, the state has had to buy it. And on Friday, Gov. Gray Davis‘s administration notified lawmakers for the fourth time in four weeks that it needs another $ 500 million from the general fund to buy electricity — bringing the state’s tab so far to $ 3.2 billion.
And Fitch Inc., a credit rating agency, said that because the loan won’t benefit the utility, it may mean the corporation has decided to allow Pacific Gas & Electric Co. to go bankrupt.
“If they’re not going to chip in to rescue their own company, why should we be the only ones to step in and rescue their company,” said Assemblyman John Campbell, R-Irvine, who was particularly upset that PG&E Corporation’s shareholders were getting part of the money.
Assemblywoman Sarah Reyes, D-Fresno, called the company’s decision to pay off its shareholders “an act of bad faith” and said the loan raises questions about the severity of the utility’s financial problems.
“When they’re coming hat-in-hand to the state to use taxpayer dollars to make them credit worthy and have an opportunity to get cash in hand and they immediately pay dividends, it doesn’t put a lot of faith in my thoughts that they really want to make their company credit worthy,” Reyes said.
PG&E previously had come under fire for shifting a sizable portion of the utility’s money to the parent corporation and to its shareholders when the utility could have used that cash to bolster its finances.
“Robber barons are alive and well in California,” said Harry Snyder, of the Consumers Union, when informed of the loan. “It’s just plain wrong. They have not shown any responsibility for the mismanagement of their subsidiary and leaving the state’s taxpayers and the state’s consumers holding the bag.”
Nonetheless, while most of the utility’s debt is to the companies that sold it electricity, an official representing some of those firms said he didn’t blame PG&E for using all of the loan for the parent company. “Sucking a healthy affiliate of its wherewithal in order to satisfy the creditors of the utilities is not a good policy,” said Gary Ackerman, executive director of the Western Power Trading Forum.
Ackerman said the key to rescuing the utilities was to raise consumers’ electricity rates and added that he believes state lawmakers will eventually work out a plan to save PG&E and Southern California Edison, which will ensure that suppliers will get what they are owed. “We do want to get paid and we will get paid,” he said.
PG&E Corp. spokeswoman Renee Parnell stressed that her company had no choice but to provide its stockholders with the dividend. Since the company had failed to live up to its promise in October to pay it, it was technically considered a debt that had to be made good under terms of the loan, she said.
Since then, the company hasn’t promised any future dividends and, thus, isn’t obligated to pay them, she said, adding that it would stop providing dividends until the two-year loan from General Electric Capital Structured Finance Group and Lehman Brothers is repaid. Parnell also emphasized that a similar loan could not have been obtained for Pacific Gas & Electric Company’s because of the utility’s perilous condition.
PG&E Corp. used its National Energy Group subsidiary as collateral for the loan. In addition to the dividend, company officials said the money would be used to pay off its commercial paper holders and other money borrowed under a revolving credit arrangement.
Chairman Glynn said the loan would be repaid solely by the company’s shareholders and that it would have “no impact on the rates the utility’s customers pay now or in the future.”
Even so, the deal left a sour taste with many of the firm’s critics. Doug Heller, an advocate with the Foundation for Taxpayer and Consumer Rights in Santa Monica, called it “a slap in the face of the public.”