Jim Seymour--very wise Man talks about rational Ca. Energy Prices......
PG&E Bankruptcy May Be a Blessing in Disguise
By Jim Seymour
Special to TheStreet.com
Originally posted at 4:46 PM ET 4/8/01 on RealMoney.com
As much as I hate to say this -- I'm no fan of putting the operating decisions of public-policy entities in the hands of judges -- my gut tells me that the widely expected bankruptcy filing Friday by PG&E's (PCG:NYSE - news) Pacific Gas & Electric subsidiary may be the best way out of this dilemma ... because it starts to insulate the process of getting to a solution from the politicians.
It also may put the question of new, higher rates into a more rational forum. That is, one that tries to match up supply and demand, not self-righteousness and demand.
That said, my big worry is a little-known corner of the 1978 bankruptcy law providing that utilities in bankruptcy proceedings can, if they do not have assurance they will get paid, stop delivering power.
My guess is the power generators that provide PG&E's electricity will, now that PG&E is subject to the bankruptcy code, try to turn this part of the law to their advantage, claiming that they are utilities, and that they can now stop delivering electricity to PG&E, no matter what the governor, public utility commission or legislature says.
If that happens, PG&E will be forced to ask the courts to find it a new supply of electricity. That is not only unlikely to be successful; it shifts the whole ground of this mess to an argument of legalisms, not one focused on delivering power to put-upon California people and businesses.
(You could also argue, since Chapter 11 bankruptcy is in large part a "look-ahead" process -- setting aside for now what has happened in the past, and who's owed how much; instead focusing on what it takes to get a company back to an ongoing concern -- that the power generators will now feel more secure that they'll get paid, going forward, and won't engage in saber-rattling over past bills. Unlikely, I think.)
To go back for a minute to my original premise -- that bankruptcy may turn out, in hindsight, to have been the only path likely to solve this, at least in the short term -- Federal Judge Dennis Montali could put into place fairly quickly after his first hearing, on May 8, price levels for electricity that recognize the realities of the situation.
Those realities are brutal for residents and businesses, but such a move could begin to shift the situation to a far more stable basis than the present one. A judicially imposed pricing structure is also likely to be only a temporary one, designed to hold the fort until power plants now down for repair come back online, and until the usual administrative and regulatory agencies can finally get a grip on the problem.
I was naive enough, early on, to think that California Gov. Gray Davis might actually be able to bring focus and resolution to these problems. Logically, he's the one who ought to do that ... and with his obvious taste for higher, national office, he might have been a little less worried about California populists' angry screams if he had brought a painful (read: expensive) but workable solution to the table.
Boy, was I wrong.
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The California power situation -- not just the immediate problems, but the ongoing worries about reliable power, at whatever cost -- are now a part of nearly every discussion about the worth, and prospects, of California businesses.
When Cisco (CSCO:Nasdaq - news) is facing a shrinking market for networking and telecom gear, when Sun (SUNW:Nasdaq - news) is faced with a mountain of only-slightly-used Sun servers flooding the used-equipment market, and when Exodus (EXDS:Nasdaq - news) is struggling to refocus and reprice as needed because competent hosting service is available from many players, it may seem odd that we talk about something so basic as these companies' electricity supply.
But we do, and we should. Though they have operations elsewhere, none of these three companies -- nor thousands of other California high-tech shops -- can quickly move major chunks of their operations out of the state to areas with more reliable sources of electricity (as well as more stable pricing for that electricity).
So their futures are inextricably caught up in California's power problems. It's not just rolling blackouts (which have far higher real costs for businesses than generally discussed), nor just the threat of "save the residential rate payer by gouging the fat-cat businesses" public policy decisions.
It's that in a time of continuing instability in something so basic as utility supply and prices, both Wall Street and Main Street look skeptically at the value and dependability of California tech companies.
Only a fool would call these bankruptcy proceedings an end-game; we're still far from that. But this may be a critical and ultimately positive step, if filing for bankruptcy does succeed in freezing out of the decision-making process, even for a few months, those loud and ineffective voices that have so far dominated the discussion.
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To be fair, it's not only the legislature and regulatory agencies in California that have egg on their faces here:
Friday morning, Goldman Sachs told clients PG&E and Southern California Edison were "returning to health," and suggested share prices could double. Instead, PG&E filed for bankruptcy that same afternoon, and both companies' shares fell by more than a third on Friday.
PG&E CEO Robert Glynn sent out an email to employees Thursday, announcing that the company was paying about 6,000 employees more than $50 million in bonuses. Getting ready for the bankruptcy filing, Bob?
And Gov. Davis spent the weekend frantically trying to close his deal to acquire the transmission grid belonging to Southern California Edison -- a move now mainly interpreted not as stabilizing the situation, but as his way of proving that the PG&E bankruptcy filing was unnecessary.
But hey, there is also some good news this weekend on the California power front: Edison International (EIX:NYSE - news), parent of Southern California Edison, announced Saturday that to conserve taxpayers' money, it wouldn't be entering its usual float in the 2002 Pasadena Rose Parade.
All together now: "Awwwwwww...." |
