San Diego Union-Tribune

A nightmare before Christmas could be in store for much of Northern and Central California this weekend if the state’s two largest utilities resort to rolling blackouts after running out of money.

That, at least, was the dire warning of Sempra Energy chief Stephen Baum, who went on national TV yesterday to warn that Pacific Gas & Electric and Southern California Edison were at risk of not having enough credit to pay for power.

The threat of a silent night, darkened night came after the Wall Street rating agency Standard & Poor’s threatened to downgrade the two utilities’ securities to junk bond status unless the California Public Utilities Commission immediately allowed them to charge higher rates to consumers.

If Standard & Poor’s follows through on its threat, it would become harder for the heavily indebted utilities to borrow the money needed to keep power flowing.

“No company can continue to operate indefinitely under such conditions,” said Gordon Smith, who heads PG&E.

But a coalition of consumer groups accused Standard & Poor’s of working in collusion with the PUC to jack up electricity rates. And they threatened to launch a “ratepayers’ revolt” against Gov. Gray Davis and the state Legislature if they backed the rate increase.

“The governor seems to have engaged in unconditional surrender to the utilities,” said Harvey Rosenfield, who heads Santa Monica’s Foundation for Taxpayer and Consumer Rights. “If rates go any higher, there will be consumers and ratepayers who will take the revolt straight to the ballot box.”

This wrinkle in the ongoing saga of the energy crisis occurred at 11 a.m. yesterday, when Standard & Poor’s warned that unless the PUC or state officials took “meaningful and substantial action” to raise rates in the next 24 to 48 hours, it would lower the boom.

Standard & Poor’s analyst Ron Barone said the utilities need at least a 20 percent increase in their rates — roughly twice as high as Davis is reportedly recommending. Barone said that without such a boost, the utilities could find it impossible to buy electricity by January or February.

(In contrast, Barone praised San Diego Gas & Electric as being in “tremendous shape with very strong liquidity,” because it has dealt with many of the problems plaguing the other two utilities.)

Industry sources say it is unlikely the PUC — which is meeting in San Francisco today — would make such a move, because state laws require a public discussion period before any rate increases are implemented. In addition, the PUC is said to be waiting for the governor’s office to finish its negotiations with the power companies.

“The PUC is not expected to raise rates,” said Steve Maviglio, a spokesman for the governor. But Maviglio added that he hoped the PUC would be able to “send positive signals to Wall Street that they should continue to back the utilities until we resolve this.”

Consumer groups are skeptical of the push for higher rates for customers. They note that the two utilities reaped record profits during the third quarter of the year, adding that their stock prices — which have been on high plateaus for the last seven months — are not reflective of companies about to go bankrupt.

PG&E reported $753 million in net income in the first nine months of the year; Southern California Edison reported $457 million.

“These are multibillion-dollar corporations that should be capable of handling their subsidiaries’ debts,” said Doug Heller, consumer advocate with the Foundation for Taxpayer and Consumer Rights, which joined with The Utility Reform Network and Consumers Union to protest the push for higher rates.

“If they’re willing to go bankrupt, the answer shouldn’t be a bailout. It should be a buyout, with the state moving in to protect the reliability of system instead of worrying about bailing out the shareholders.”

To assuage the consumer groups, Davis is now seeking an independent auditor to review the energy companies’ books and determine whether their claims of being $8 billion in debt are accurate, said spokesman Maviglio.

As the battle over rates continued, California lurched into another Stage 2 power emergency, due to the failure of a key energy pipeline in the Central Valley.

U.S. Energy Secretary Bill Richardson again invoked the Federal Power Act, renewing a weeklong order that forces generators throughout the Northwest to supply surplus electricity to California at “reasonable prices.”

But industry officials say that if Standard & Poor’s lowers its rating, it may be hard for Richardson to enforce his order, which expires Dec. 27.

“It’s possible that power sellers could just refuse to follow Richardson’s order,” said Sempra spokesman Doug Kline.

The Standard & Poor’s review came as regulators, politicians and industry leaders were meeting in Sacramento, Denver and Washington, D.C., to find a solution to the long-running energy crisis:

 In Washington, California utilities and electricity generators failed to reach a deal over long-term power supply contracts after two days of closed-door meetings at the Federal Energy Regulatory Commission.

The contracts are meant to guarantee energy at a fixed rate over the next five years. But power producers and energy marketing firms are pushing for the right to alter the rates each year to reflect inflation and shifting market conditions. The negotiations are slated to continue Jan. 3. Unlike this week’s talks, representatives of consumer groups will be invited to attend the next round.

 In Denver, the governors of Washington, Oregon, Wyoming, Colorado and Utah asked FERC to review the prospect of setting wholesale rate caps throughout the region — an action the federal board has so far declined to take. The governors also called for an investigation of whether energy suppliers have withheld power so they could reap higher prices. And they pushed for coordinated conservation measures throughout the Western states — especially in California.

 In Sacramento, Davis spent the day on the phone with Wall Street analysts and consumer groups, hoping to patch over any differences. Davis spent Tuesday night meeting with former U.S. Secretary of State Warren Christopher, who is a member of the Edison board of directors, and John Bryson, who heads Edison, as well as with top Democratic legislators and unidentified PG&E officials.