Too Little Juice, Too Much Red Ink

California Power Grid Is Put On Stage Three Alert SoCal Edison Says It Hasn't Paid $596 Million Of Its Bills SEC Filing Turns Up The Heat As Talks On Solution Continue

NEW YORK and LOS ANGELES, Jan. 16, 2001 AP Power grid operators are using supply alerts to get customers to cut consumption when necessary. (CBS) California's power crisis was turned up a notch Tuesday, as one of its largest utility companies filed papers with the Securities and Exchange Commission, saying it has not been able to pay its bills.

That word came as the power grid was put on stage three alert, because of low resources, and California Governor Gray Davis continued negotiations on a way to both provide more power and alleviate the financial woes of the power providers.

Tuesday's stage three power alert means that electricity reserves are expected to dip below one to one and a half percent, customers are being asked to reduce consumption, and there is the threat of rolling blackouts.

Southern California Edison notified the SEC Tuesday that it has temporarily suspended at least $596 million of payments, and is in default to some of its noteholders.

The payments the utility has "temporarily suspended" include $230 million of principal and interest on 5.875 percent notes, $215 million to the California Power Exchange, and $151 million to qualifying facilities, as well as "certain other obligations."

SoCal Edison says failure to make the note payment constitutes a default under the terms of the notes, as well as a default on SoCal Edison's and Edison International's credit facilities.

SoCal Edison said it took action to allow it to continue to operate while efforts to find a regulatory solution are underway. Separately, SoCal Edison said it and Edison International plan to postpone release of their fourth quarter and year-end 2000 fiscal results pending further developments.

SoCal Edison and Pacific Gas and Electric Co., a unit of San Francisco-based PG&E Corp., have run up billions of dollars of debt this year because they are subject to a rate freeze and have been unable to pass on their skyrocketing wholesale power costs to consumers.

PG&E said Monday it will be able to pay a $40 million bill that it has coming due this week.

The Federal Energy Regulatory Commission gave PG&E permission on Friday to change its corporate structure and create the National Energy Group, which will own the utility's generators and natural gas projects.

Consumer groups aren't happy about that and claim the restructuring makes PG & E seem financially worse off than it is, giving a false impression that it needs financial assistance from the government.

The restructuring insulates the bulk of PG & E assets from the utility's credit problems.

Gov. Davis is continuing talks to try to implement a three-year plan under which the state would buy power cheaply using its good credit, then sell it to the utilities at cost.

The governor must first convince lawmakers to sign on to his plan, because currently California has no mechanism to buy and sell power itself.

Power producers are hesitant to sell at Davis' proposed price - 5.5 cents per kilowatt-hour - on the grounds that their costs dictate a price of 8.5 cents per kilowatt-hour.

"I don't think suppliers, given all the money on the table, are going to bend very much on the contract terms and price," Gary Ackerman of the Western Power Trading Forum told the Los Angeles Times.

Consumer groups, who fear that taxpayers will be asked to bail out the utilities, say they too are skeptical of Davis' plan, saying that any deal should include provisions preventing the utilities from collecting previously incurred costs.

California is in the midst of a power crisis with a chronic shortage of supply partly caused by the existence of too few power plants and aggravated by recent increases in the price of natural gas, used to fuel power plants.

Some power plants have even switched to oil, according to Patrick Dorinson, a spokesman for the Independent System Operator, which controls the power grid for the state of California.

Federal agencies are involved in the negotiations over the California power crisis.

Davis and others have called on the Federal Energy Regulatory Commission to impose price controls on the energy wholesalers who are the suppliers of the power re-sold by the utility companies.

Sen. Dianne Feinstein, D-Calif., plans to propose legislation to give the Energy Secretary authority to cap skyrocketing wholesale electricity prices in 11 Western states. The measure would allow the imposition of a temporary wholesale price cap which would remain in effect until prices stabilized.

http://cbsnews.com/now/story/0,1597,221065-412,00.shtml

-- Martin Thompson (mthom1927@aol.com), January 16, 2001