CNBC BUSINESS CENTER
RON INSANA, co-anchor:
The California power crisis has two of California’s biggest utilities now on the brink of bankruptcy. Southern California Edison, a unit of Edison International, and Pacific Gas and Electric both had their credit ratings slashed to low junk status following word SoCal Edison would be postponing nearly $ 600 million in payments to its creditors. All this coming as the state declares a Stage 3 power emergency.
INSANA: Those developments put a power drain on both those stocks today and helped to hurt the Dow utility average. We have two reports on the energy crisis. Jerry Cobb is in Los Angeles with more on the troubles facing the Golden State, and Jennifer Lewis-Hall will tell us about the power players being called upon to generate more energy.
Jerry, let’s start with you in California.
JERRY COBB reporting:
Well, Ron, power officials here in California are struggling to keep the lights on tonight after an extreme shortage of electricity forced grid operators to declare for just the third time ever a Stage 3 electricity alert. Meanwhile, Edison International took one step closer to bankruptcy in an apparent effort to spur lawmakers into action.
(Joined in progress) …effort to conserve its dwindling cash, Edison International will skip a scheduled $ 230 million interest and principal payment due on one of its five-year notes. In its latest SEC filing, the company says its Southern California Edison utility will also withhold some $ 366 million in payments it owes power generators, including California’s Central Power Exchange.
Mr. STEVEN FLEISHMAN (Merrill Lynch): They’re certainly facing a cash crunch. They want to see progress being made on some kind of overall resolution of this before they dole out more cash anywhere. But clearly this raises the stakes, and as we said in our piece this morning, in–in “Star Trek” lingo, we’re now at red alert.
COBB: Edison‘s default triggered downgrades from debt rating agencies and could prompt creditors to force the company into an involuntary bankruptcy. But industry watchers say the move could spur California lawmakers to craft a short-term bailout for Edison and PG&E Corp, which have both been bled dry by spiraling wholesale power costs.
Mr. PAUL PATTERSON (Credit Suisse First Boston): Unless they see something pretty concrete and pretty fast coming out of the state Legislature, it really doesn’t make a lot of sense for them to–to spend all their money and then go bankrupt.
COBB: The state Legislature is working on emergency legislation that would allow California’s Department of Water Resources to purchase power for the utilities until the financial crisis is resolved. But consumer groups are prepared to fight any plan that sticks rate-payers with the final bill for the state’s ill-fated attempt at electricity deregulation.
Mr. HARVEY ROSENFIELD (The Foundation for Taxpayer and Consumer Rights): They viewed deregulation as a bonanza, and it was a bonanza for many years for the utility companies. And now that it’s–it’s starting to cost them some money because they didn’t anticipate how deregulation would work out in the marketplace, they want to have the rate-payers bail them out. I say it’s unfair. And if the politicians in Sacramento cave in to the utility companies, it’ll be reversed at the ballot box in 2002.
COBB: And that’s no idle threat coming from Harvey Rosenfield. He was the driving force behind the auto insurance revolt that caught fire here in California several years ago and spread to the rest of the country, resulting in rate rollbacks for millions of motorists.
Meanwhile, Moody’s says despite its downgrades on Edison‘s debt today, it remains optimistic that politicians will be able to pull together some sort of solution that will prevent Edison and PG&E from filing bankruptcy.