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Calif. Utility in New Defaults As Crisis Persists January 19, 2001 1:57 pm EST

By Kenneth Barry NEW YORK (Reuters) - California received last-minute help from the Clinton administration to ease its energy shortage on Friday, while power officials in the state worked to avoid fresh blackouts.

The U.S. Energy Department will order power suppliers to sell to a major California utility even as another big, cash-strapped utility in the state disclosed a new round of payment defaults as the energy crisis dragged on.

Californians awoke on Friday to dire warnings that they are still dangerously low on electricity, but there was guarded optimism the state might escape more blackouts because of a warming weather trend, which eases electric heating demand, and the typical drop in power use as schools, offices and factories shut for the weekend.

The nation's most populous state has been hit with controlled, or "rolling," power blackouts due to tight supplies of electricity. To meet demand, California utilities have been forced to pay skyrocketing prices for wholesale electricity on the spot market, and are not permitted to pass through their full costs to consumers under the state's 1996 deregulation law.

"Things are still very tight. Loads (on the grid) are trending a little lower than yesterday but are still very difficult," Patrick Dorinson, spokesman for the California Independent System Operator (ISO), which manages electricity flow for most of the state, said.

CLINTON ADMINISTRATION STEPS IN

On the last full day of the Clinton administration, Energy Secretary Bill Richardson said his department would order out-of-state natural gas suppliers to sell fuel to embattled PG&E Corp's Pacific Gas & Electric Co so it can continue to provide electricity for California homes and businesses.

The order was to be signed later in the day, and would extend through midnight on Tuesday, Richardson said.

In California, Gov. Gray Davis was set to sign a $400 million emergency power purchase plan on Friday in another effort to keep the electricity flowing and prevent immediate utility bankruptcy.

The bill, which earmarks some $400 million for immediate state power purchases, comes after California suffered through two consecutive days of rolling blackouts on Wednesday and Thursday caused by local supply problems and the inability of its cash-strapped utilities to buy out-of-state power.

Davis has set out a plan under which the state's Department of Water Resources will use money from the general fund to buy power on behalf of the utilities.

But few observers of California's energy mess believed that the state was close to solving what has exploded into a major economic and political crisis.

Southern California Edison, the state's other major utility, said it defaulted on $32 million of commercial paper maturing on Thursday and expects to suspend payments on $223 million of additional commercial paper maturing by Jan. 31.

The company, a subsidiary of Rosemead, Calif.-based Edison International, disclosed earlier this week it failed to make interest payments on three note issues, and a principal payment on one of those issues.

UTILITIES HAVE RUN UP $12 BILLION DEBT

On Wednesday, Pacific Gas and Electric Co., California's biggest utility, and its parent, San Francisco-based PG&E Corp., defaulted on a combined $76 million of commercial paper.

The two California utilities have run up about $12 billion of debt and are teetering on the edge of bankruptcy. Their bankruptcy would rank among the nation's biggest, hitting creditors ranging from retirees invested in traditional safe havens to institutional corporations, analysts said.

But a top Federal Reserve official said California's problems did not pose any immediate danger to the U.S. economy.

"I think it's a serious problem for the California economy. I do think it's a California issue," Federal Reserve Bank of Richmond President Alfred Broaddus said after a speech in Richmond, Va.

"In the larger macroeconomic context I don't think it's a situation that's going to have an untoward impact on the national economy in the context of everything that's going on," he added.

An energy adviser to President-elect George W. Bush, meanwhile, said on Friday he opposed a plan for capping wholesale power prices in the West as a way to ease California's electricity crisis.

Ken Lay, head of power marketer Enron Corp. said a price cap would "start spreading the shortage around to other states."

Lynn LoPucki, a bankruptcy expert at the University of California at Los Angeles, said any solution to the problem will require political action in the form of a bailout -- a move which will most likely involve concessions by creditors.

http://www.iwon.com/home/news/news_article/0,11746,79847|top|01-19-2001::14:06|reuters,00.html

-- Martin Thompson (mthom1927@aol.com), January 19, 2001

Answers

On the last day of the Clinton administration Richardson is ordering suppliers to sell to the deadbeat utilities in California.

I find that ironic.

I wonder if the new Bush administration will continue such practice.

-- RogerT (rogerT@c-zone.net), January 19, 2001.