Does anyone have an opinion on the S Cal. utilities? Are they dead meat? Or very cheap? And how are their customers doing business with rates up sharply? Has Silly Valley been shielded from the worst so far? I think the worst has been in southern California, but am not really sure how the north has fared.
California Utilities Move Closer to Bankruptcy
Jan 16 6:27pm ET
By Nigel Hunt
LOS ANGELES (Reuters) - California's lawmakers worked feverishly on Tuesday to find a way to
directly buy electricity for 24 million customers as the state's two largest utilities had their debt
ratings slashed to junk status in what was seen as the last step before declaring bankruptcy.
The gloom began early on Tuesday when Southern California Edison shook the financial community by
announcing it would not make $596 million in payments due to various creditors so that it could
"preserve cash."
The three agencies rating company creditworthiness responded by downgrading Southern California
Edison's debt deep into junk status. Standard & Poor's also cut ratings on another embattled California
utility, Pacific Gas & Electric, to junk grade.
Adding to the crisis, the California Independent System Operator, which runs most of the state's power
grid, declared a so-called Stage Three emergency on Tuesday, its highest level alert, after reserves
dropped below 1.5 percent of demand. Such low reserves raise the threat of state-wide rolling
blackouts.
Meanwhile, California lawmakers rushed a bill through the state Assembly that aims to ease the
worsening power crisis by bypassing the utilities and letting the state sell electricity directly to
consumers.
Assembly bill 1X taps the state Department of Water Resources -- already the largest buyer of
wholesale electricity in California -- to purchase additional power through low-cost, long-term
contracts with electricity generators at no more than 5.5 cents per kilowatt hour to provide a stable
supply of affordable power.
DEBT SKYROCKETING UNDER RATE FREEZE
Currently, power generators are charging the utilities about five times that amount in the spot
market. As a result, the utilities have run up billions of dollars of debt this year because they have not
been allowed to pass on skyrocketing wholesale power costs due to a rate freeze imposed under the
state's much-criticized power deregulation.
The shortfall on power purchases at the end of December stood at $6.6 billion for PG&E Corp. unit
Pacific Gas & Electric and around $4.9 billion for Edison International's Southern California Edison.
Credit concerns have exacerbated an already desperate power shortage in California with suppliers
reluctant to sell to utilities tottering on the edge of bankruptcy.
The two utilities have seen the stock prices of their parent companies wither -- with Edison
International closing at $9-9/16 on the New York Stock Exchange, down about six percent, and PG&E
ending Tuesday at $10-15/16, down about five percent.
Southern California Edison, which is based in a suburb of Los Angeles, serves around 11 million
residents and San Francisco-based Pacific Gas and Electric about 13 million, accounting for about 70
percent of the state's population.
State lawmakers want a bill that would allow the state to sell electricity directly to consumers to keep
the lights on if the utilities are eventually driven into bankruptcy.
Racing against the clock, California Gov. Gray Davis was attempting to broker a deal with the utilities,
their suppliers and state lawmakers.
The utilities want lawmakers to allow them to pass on their power purchase costs to their customers
and also to collect the billions of dollars they spent buying electricity on behalf of their ratepayers
last year.
MASSIVE CONSUMER BACKLASH FEARED
Lawmakers are afraid there will be a massive consumer backlash if they allow electricity rates to rise
sharply.
"Unless the legislature pulls a bill out of its hat, giving them virtually all of what they (the utilities)
want, it's pretty much over," said Shawn Burke, head of U.S. investment-grade research at Barclays
Capital.
On Jan. 4, the California Public Utilities Commission approved a 10 percent temporary rate hike but
the utilities, rating agencies and many analysts considered the increase to be inadequate. Both parent
companies have halted dividend payments to shareholders.
Among the missed payments by Southern California Edison was $215 million owed to the California
Power Exchange, raising the possibility that the Pasadena-based electricity exchange may suspend
them, market sources said.
They noted the default could result in the liquidation of profitable positions in the forward market --
where utilities can buy electricity for the months ahead -- worth hundreds of millions of dollars.
Southern California Edison provides around 50 percent of its electricity needs from its own power
plants. The other half is purchased either through the California Power Exchange or the California
Independent System Operator.
Both institutions were set up under legislation to deregulate the state's power markets. Advance
purchases of electricity are made through CalPX. The ISO makes real-time power purchases on behalf
of the utilities.
Wholesale power prices in California started soaring in late spring 2000 as supplies struggled to keep
pace with surging demand linked to a buoyant economy.
California's acute power problems are rooted in the fact that no significant new plants were built
during the last decade, partly because of uncertainty over the deregulation of the state's electricity
industry. |
