Wall Street Taking Pulse of Utilities

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The New York Times Company

When the stock markets open for trading Tuesday morning, investors will be keeping a watchful eye on the parent companies of two of California’s largest utilities, wondering if this is the week either declares bankruptcy.

Executives from the PG & E Corporation and Edison International, along with state leaders and representatives from the power generators selling the state much-needed power, spent Martin Luther King’s Birthday in discussions to solve the state’s energy woes. Their subsidiaries, Pacific Gas and Electric and Southern California Edison, the state’s two largest utilities, have said millions of dollars they owe to power generators is due Tuesday and they are warning they may not have enough cash to pay. Both utilities are hoping that one result of the weekend’s negotiations will be to give them some leeway in paying, as much as 60 to 90 days.

On Saturday, California’s governor, Gray Davis, pledged he would not allow the utilities to fail. A legislative bill is expected to be introduced Tuesday in California that would allow the state to intervene and buy electricity for the beleaguered utilities at a lower price than they are paying now. The state would then sell it at cost to the utilities. Governor Davis is also advocating two other bills introduced last week, with one of them aimed at reorganizing the state’s power grid.

So far, the actions taken by state leaders have been barely enough to satisfy the credit rating agencies that monitor the utilities’ health. David Bodek, a utilities credit analyst at Standard & Poor’s, said the bills introduced address long-term problems, but do little to address the $12 billion tab the two utilities owe creditors now.

The utilities are taking matters into their own hands to protect themselves from potential creditors, industry analysts said. On Friday, the Federal Energy Regulatory Commission agreed to allow PG & E to reorder its assets by creating a separate company for its generation and energy-trading operations that could shelter those assets from any liability. By doing this, Mr. Bodek said, PG & E preserves the credit rating of those operations and protects the company from “a downgrade snowballing into something worse.”

But PG & E’s decision to reorganize angered some negotiators who said they were not aware of the commission’s decision on Friday. At issue, people involved in those discussions said, is whether PG & E is using the threat of insolvency to extract concessions from both the state and the generators while protecting profits that some groups say should be tapped to help pay the $12 billion tab.

According to one person involved in the talks, executives from PG & E have said repeatedly that it was “in worse shape” than Southern California Edison.

“This is a poker game and no one wants to show their cards,” one executive in attendance said. A spokesman for PG & E said the separate company was indeed created to reduce or limit the parent companies’ exposure to the utilities losses. But consumer advocates expressed ire at PG & E for moving to protect itself and its investors, while demanding rate increases of 26 percent from its customers. “For the last eight weeks, the utility companies have been issuing ultimatums, saying they were going bankrupt,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. “PG & E should not be shielded from its own mismanagement. Before the ratepayers should pay a penny, PG & E should be forced to sell nonessential assets.” The spokesman for PG & E would not address the ratepayer issue, except to say the reorganization was “good for the company.”

A spokesman for Southern California Edison said it planned to file documents with the Securities and Exchange Commission soon.


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