Californian Utilities' Woes Spread to Independent Power Producers

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Californian Utilities' Woes Spread to Independent Power Producers By Robert Gibbons, BridgeNews

New York--Jan. 4--Shares of companies selling power at record prices to California's cash-strapped utilities plunged Thursday as PG&E Corp. and Edison International edged closer to bankruptcy, raising fears they may not be able to pay for the electricity.

On Wednesday, the California Public Utilities Commission outlined a plan to let Southern California Edison and Pacific Gas and Electric raise their selling prices to offset a huge surge in wholesale power costs. It was expected to formally approve the price hike, which was widely criticized as too small to help, on Thursday.

If it does, the utilities will be allowed to raise retail prices by as little at 7% for residential customers and by up to 15% for industrial users.

That's much less than the 26% to 30% rate increases the companies say they need to avoid bankruptcy. The rates they're allowed to charge customers are frozen at 1996 levels until 2002, but cold weather and a lack of generating capacity in the West have boosted the wholesale prices the utilities pay for power as much as 60-fold from last year's levels.

As a result, the utilities say, they have spent $9 billion more on power in 2000 than they can recover. Their cash reserves are dwindling, and the squeeze they face makes it hard for them to borrow more.

Stock in PG&E Corp., the owner of Pacific Gas and Electric, was down 31% at $11.68 at noon, while shares of Edison International, Southern California Edison's parent company, fell 30% to $8.56. The plunge follows an 18.3% slide in Edison International and a 13.1% fall in PG&E on Wednesday.

If the CPUC votes in favor of the small increase, the utilities' prospects could get even worse. The credit-rating agency Fitch said it would cut its ratings on both companies' debt to junk-bond status if the scheme isn't changed.

"If the proposal is approved in its current form by the CPUC, Fitch would expect to lower the securities ratings of the two utilities below investment grade," the agency said. "While the proposal offers a 7-15% increase in retail rates for retail customers, the increase is insufficient to stem the utilities liquidity crisis."

Independent power producers such as Calpine Corp. and Dynegy Inc., which have been selling electricity to the utilities, would suffer if they failed. Shares of Calpine were down 21.1% at $30.37 in early afternoon, while stock in Dynegy fell 7.2% to $45.25.

"It's fear of not getting paid," said Gordon Howald of Credit Lyonnais Securities.

The power producers have to wait 60 days for payment for electricity sales to buyers in California. Howald said that the rate increase would allow the utilities to pay their bills in January and February, but leaves uncertainty about payments that will come due as soon as March.

"The market was looking for something more concrete," Howald said. "If you're an investment portfolio manager do you want to be sitting in Calpine or Dynegy?"

Source B BridgeNews Global Markets

http://www.futuresource.com/ce/www/htdocs/fswrap.shtml?s=fs2&c=30&aid=36852

-- Martin Thompson (mthom1927@aol.com), January 04, 2001


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