Thanks for posting this important development. Here's the full article from Bloomberg.
12/22 14:41
Greenspan, California Governor Gray Davis to Meet
(Update1)
By Mark Lake and Liz Goldenberg
New York, Dec. 22 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan agreed to meet
California Governor Gray Davis on Tuesday as California faces an energy crisis that threatens to
put its two biggest utilities into bankruptcy.
``Davis asked for this,'' said Steve Maviglio, spokesman for Davis. ``He wants to talk with him
about the electricity situation in California and see if he has any ideas.''
The meeting, to take place in Washington, comes as Pacific Gas and Electric Co. and Southern
California Edison struggle under $8.1 billion of losses stemming from soaring power costs and
regulations barring them from raising prices.
Fed officials have called Wall Street dealers who underwrite the companies' short-term debt, or
commercial paper, as well as analysts, seeking information on the effect of the crisis in the
markets, two dealers said. A Fed spokeswoman didn't provide further information. A default on a
company's commercial paper typically triggers defaults on its other debt. The two utilities
combined debt load is more than $20 billion.
As the overseer of the U.S. banking system, the Fed monitors potential financial crises for any
possible ripple effect that could hurt the economy.
With growth slowing and banks curbing lending, ``a credit issue can pose the potential to
become a systemic threat,'' said Jim Glassman senior U.S. economist at Chase Securities. ``What
is a strictly an event not related to the economy in a narrow sense could fuel the fears of other
issues like this.''
Power Losses
Edison, in a regulatory filing this week, said it may have no choice but to seek bankruptcy
protection, while the state has considered blackouts if the utilities can't continue buying power.
By meeting with Greenspan, Davis may have an easier time pushing through a rate increase,
which, while unpalatable to consumers, would provide the utilities with some relief. The
California Public Utilities Commission, which must approve rate increases, yesterday said they
would hear arguments about a price rise next week, though the earliest they would bring the
issue to a vote would be Jan. 4.
``The commission made a late first step when they should be running,'' said Paul Patterson, an
analyst at Credit Suisse First Boston who has ``hold'' ratings on both companies.
Shares of San Francisco-based PG&E Corp. -- the parent of Pacific Gas and Electric -- ose 69
cents to $18.94 in afternoon trading. They fell 12 percent yesterday. Shares of Rosemead,
California-based Edison International -- which owns Southern California Edison -- fell 31 cents to
$14.63. They fell 16 percent yesterday.
Debt Load
In addition to the losses, PG&E has a commercial paper program of $1.85 billion, some or most of
which may come due within the next four weeks.
Southern California Edison has a commercial paper program of $1.6 billion. Both companies are
under review for a possible debt ratings cut from Moody's Investors Service and Standard &
Poor's, effectively barring them from issuing new commercial paper.
Under typical circumstances, the companies would use backup credit lines to refinance the
commercial paper if they couldn't issue new commercial paper.
``The commercial paper market is the lifeblood of the credit markets,'' said Tom Gallagher, a
Washington-based at ISI Group Inc. ``If all of the sudden there's a problem there, credit markets
can freeze up really fast.''
Borrowings
In the case of PG&E, the company has borrowed up to its authorized limit, including part of a $1
billion backup line arranged by Bank of America Corp. two months ago, according to a Securities
and Exchange Commission filing. The California PUC yesterday granted the utility's request to
raise an additional $2 billion with long-term debt.
PG&E's existing long-term debt stood at $6.5 billion as of Sept. 30, according to a filing with the
SEC. Edison International had $12.5 billion in long-term debt as of Sept. 30, a separate SEC filing
showed.
Southern California Edison recently asked Chase Manhattan Corp. to renew a $1 billion credit line
to back up its $1.6 billion commercial paper program, according to people familiar with the matter.
A number of the company's lenders, including Bank of America, balked at lending because of
concerns that losses may force the company into bankruptcy.
California has faced the prospect of blackouts because electricity providers in the U.S.
Northwest refused to sell power to the utilities over concerns they couldn't pay. Rolling blackouts
were averted earlier this month after state and federal agencies provided last-minute supplies.
PG&E serves San Francisco and the surrounding area. Edison is serves the area around the city
of Los Angeles, which itself has a municipal utility, the Department of Water and Power.
The California Independent System Operator, which manages the state's power grid, yesterday
said it may cut power to some industrial users after electricity reserves dropped again. It is the
35th time the operator has declared a so-called stage two emergency.
quote.bloomberg.com |
