2 California utilities say they may run out of cash

PG&E, Edison argue for rate increases of 26% and 30%

January 03, 2001|By BLOOMBERG NEWS

NEW YORK - PG&E Corp. and Edison International, owners of California's two largest utilities, say they will run out of cash this month unless they win rate increases of 26 percent to 30 percent and retain investment-grade credit ratings.

PG&E has about $1.2 billion, or three weeks of cash left, according to a filing with the U.S. Securities and Exchange Commission.

The company must make payments of $438 million today and $583 million Feb. 1 for electricity already provided to customers, the filing said.

Edison has less than three weeks' cash left, said Bruce Foster, vice president of regulatory affairs at Southern California Edison, Edison International's California utility.

"We will not be able to make our payments to the [California] Power Exchange," the marketplace where the state's three investor-owned utilities buy most of their electricity, Foster said yesterday.

Edison's stock, down 32 percent in the past month, fell 63 cents to $15. PG&E stock slid 44 cents to $19.56. Its shares have fallen 27 percent since Dec. 2.

Foster spoke to reporters outside a California Public Utilities Commission hearing in San Francisco, where the two utilities are making cases for rate increases. Edison is requesting a 30 percent increase, and PG&E has asked for 26 percent.

PG&E, owner of California's largest utility, and Edison, owner of the second-largest, have more than $11.9 billion in debt from power sales they cannot pass on to customers.

The state's 1996 deregulation law, which the two utilities supported, froze the rates they can charge consumers at the same time it encouraged them to sell off their power plants and buy electricity from outside suppliers.

Electricity prices surged as much as 100-fold in California this summer and winter because of flaws in the state's deregulation law, restrictive land-use and environmental regulations that have prevented the addition of power plants over the past decade, and rising demand because of a growing economy.

Credit agencies are threatening to lower the utility companies' debt ratings to below investment grades, which would make borrowing more difficult and expensive. The credit warnings have made it more difficult to buy power and natural gas, the utilities say.

Some suppliers, including Dynegy Inc. and Reliant Energy Inc., that profited from soaring power sales, now are demanding payment in advance from PG&E before delivering gas, said Stacey Homrig, a PG&E spokeswoman.

"The same companies that created our financial crisis are now saying they can't deliver gas without payment," Homrig said. "They told us that we can't get anything beyond our current contracts unless we pay cash."

PG&E said it has enough gas to meet demand this month, but is having difficulty buying more for February under long-term contracts. Gas prices soared last month to more than 23 times normal levels because of a nationwide shortage, cold weather and increased usage of the fuel for power generation in the region.

PG&E said Friday that it had purchased enough power to last this month, so long as temperatures do not drop and send demand above projected levels.

Edison has eliminated its dividend and is warning of layoffs and bankruptcy if it does not get its rate increase. PG&E "must either raise substantial sums of new capital or default on its payment obligations," its SEC filing said.

PG&E already received permission to raise an additional $2 billion in long-term debt, but there are few investors willing to buy without some back-up credit guarantees.

PG&E will have to repay any maturing commercial paper this month, and $12 million in maturing medium-term notes Monday and $6 million Jan. 10, according to Bloomberg data.

PG&E's losses on power purchases last year were about $7 billion, and Edison International's were about $4.9 billion, according to spokesmen at each of the companies.

The California Public Utilities Commission expects to make its decision on rate increases for the companies by tomorrow.

The California Legislature also is meeting in emergency session today to offer proposals to lower energy prices in the state.

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