Douglas
This may in fact be the bail out that Slider said AG would not be a party to. Who says Greenspan won't help out. I don't remember AG ever meeting with a Governor. Might be time to go long the CA utilities.
link:http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&refer=topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOkOuaRTWR3JlZW5z
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. |
