Energy crises in California is going to get front page coverage. Greenspan is being called in to bail out the
utilities currently being forced to produce electricity at a loss.
From Bloomberg tv:
12/22 16:25
Greenspan, California Governor Gray Davis to Meet (Update2)
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 soaring power bills threaten to put the state's two biggest utilities into bankruptcy.
``Davis asked for this,'' said Steve Maviglio, spokesman for the Democratic governor. ``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 declined to comment.
With their credit rating under review for a possible downgrade, the utilities can't sell more commercial paper. More than $2 billion of the short-term debt matures in the next two months. A default on the IOUs typically triggers defaults on a company's other debt, which totals more than $20 billion for the two utilities.
Fed Role
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. The central bank in 1998 brokered a $3.6- billion bailout of Long-Term Capital Management by more than a dozen banks and securities firms after the near-collapse of the hedge fund roiled world markets.
Now, 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 strictly an event not related to the economy in a narrow sense could fuel the fears of other issues like this.''
Edison, in a regulatory filing this week, said it may have no choice but to seek bankruptcy protection, while California -- has considered blackouts if the utilities can't continue buying power.
Standard & Poor's, which earlier this week indicated it was prepared to cut ratings on the utilities to junk status, today left ratings unchanged. It said it did so in part because the heightened involvement of senior government officials ``suggests that the utilities may be spared from insolvency.'' The rating company still has their debt under review for a possible cut.
Politics
The meeting with Greenspan could help Davis show the crisis has national implications, muting opposition to a poltically unpopular rate increase.
The California Public Utilities Commission, which must approve 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 -- rose $1.81 to $20.06. Shares of Rosemead, California-based Edison International -- which owns Southern California Edison -- gained $1.31 to $16.25.
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.
`Lifeblood'
Southern California Edison has a commercial paper program of $1.6 billion. With both companies under review for a possible debt ratings cut from both S&P and Moody's Investors Service, they're effectively barred from issuing 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.''
Under typical circumstances, the companies would use backup credit lines to refinance the commercial paper if they couldn't issue new commercial paper.
Yet Southern California Edison is having troubling convincing lenders led by Chase Manhattan Corp. to renew a $1 billion credit line that backs up its $1.6 billion commercial paper program, according to people familiar with the matter.
Allowed to Borrow
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.
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.
Emergency Declared
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.
New West Energy, the trading unit of Arizona utility Salt River Project, withdrew from the California market this week, calling it too risky. The company has held up to $72 million in monthly IOUs from California utilities, said spokesman Frederick Bermudez.
``If the utilities go bankrupt, the ISO goes bankrupt and California could go dark,'' he said. ``If that happens, somebody will be left holding the bag and we are trying to make sure it is not us.'' |
