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Date: Mon, 19 Mar 2001 09:46:49 -0600 From: "Tracey Bradley" <tbradley@bracepatt.com< To: "Paul Fox" <pfox@bracepatt.com< Cc: "Ronald Carroll" <rcarroll@bracepatt.com< Subject: California News - Friday Evening, March 16, 2001 Mime-Version: 1.0 Content-Type: text/plain; charset=US-ASCII Content-Disposition: inline Friday March 16, 9:41 pm Eastern Time PG&E Corp. Gets $1.2B Tax Refund SAN FRANCISCO (AP) -- PG&E Corp. disclosed Friday that it has received a $1.2 billion tax refund and will hand over almost all the money to its nearly bankrupt utility. The San Francisco-based company said it will give $1.1 billion to Pacific Gas and Electric Co., the utility whose losses last year triggered the refund. By turning over the refund to its subsidiary, PG&E is following the suggestion of a state-ordered audit released in January The holding company hasn't always been so generous with its utility. PG&E pocketed a $278 million overpayment that the utility made on its 1999 taxes, according to the audit by the Barrington-Wellesley Group Inc. With the refund, Pacific Gas and Electric's cash reserves rose to $2.7 billion, but the utility still doesn't have enough money to pay hundreds of increasingly testy creditors. The utility has been on the financial ropes for months because wholesale electricity prices have been far higher than retail prices since last May. As of Jan. 31, Pacific Gas and Electric said it had run up an $8.3 billion debt buying electricity. Pacific Gas and Electric plans to use some of the tax refund to maintain the operations that enable the utility to continue delivering power to its customers. *********************************************** Friday March 16, 7:33 pm Eastern Time Giant Calif. Utility Gets Cash Lifeline By Andrew Quinn SAN FRANCISCO (Reuters) - California's largest utility, shoved to the brink of bankruptcy by the state's power crisis, received a $1.1 billion lifeline on Friday as its parent company turned over a massive federal tax refund to keep operations going. Pacific Gas & Electric's financial boost from parent PG&E Corp (NYSE:PCG - news) will provide the giant utility with desperately needed funds to keep serving its 13 million customers as the state's political leaders struggle over a bail-out package. In a glimmer of optimism, corporate executives said on Friday that a bail-out deal might be edging closer. But the cash infusion and bail-out progress came amid growing concern over the financial health of California's two major utilities amid a crisis fueled by the disastrous 1996 state electricity deregulation law that forced the utilities to buy power on the spot market but refused them the right to pass the higher prices on to consumers. On Friday, Pacific Gas & Electric said it would make good on only a segment of debt payments due on April 2 -- adding to the mountain of unpaid paper the utility has stacked up. Southern California Edison, the state's number two utility, said it would fight any effort to push it into involuntary bankruptcy. In Washington, meanwhile, federal regulators ordered six generators to either justify why their prices were so high or refund $55 million to California utilities for overpriced wholesale power sales in February. The Federal Energy Regulatory Commission (FERC) move followed a similar $69 million refund order against the same six generators last week for their January sales, boosting California critics who have alleged that ``out-of-state profiteers'' have exacerbated the state's critical energy shortages. The crisis led power managers to impose rolling blackouts across parts of the state twice in January, and federal Energy Secretary Spencer Abraham said on Thursday he believed more blackouts appeared ``inevitable'' this summer as air conditioning pushes power demand sharply higher in the state. PG&E VOICES OPTIMISM Both Pacific Gas & Electric and its No. 2 rival, Edison International (NYSE:EIX - news) unit Southern California Edison, have been fighting a losing financial battle because the 1996 power deregulation law blocks them from passing along soaring wholesale energy costs to consumers. As a result, the utilities are well over $13 billion in debt and say they simply do not have the money to continue purchasing power for their customers. California Gov. Gray Davis, facing one of the worst economic crises ever to hit the nation's richest and most populous state, has crafted a rescue package which involves both emergency state purchases of power and an elaborate bail-out for the utilities. But that bail-out, hinging on the state buying the utilities' vast network of transmission lines, has run into trouble as negotiations bog down over the price of the deal. On Friday, however, PG&E Corp. Chief Financial Officer Peter Darbee told a teleconference with investors that the talks were on track. ``We are making pretty good progress and have moved to the point where a greater level of detail'' is being negotiated with Davis, he said, adding that he was ``cautiously optimistic'' a deal could be reached. Darbee also said the talks had taken on ``a quickening pace of activity'' as pressure builds to find a solution to the state's power emergency. The income tax refund raised the utility's cash on hand to $2.7 billion, but officials said that, once all of the utility's debts were tallied, it would still be $1.6 billion in the red. PG&E said on Friday in a filing with the Securities and Exchange Commission it would make quarterly interest payments on its commercial paper due April 2, but would deferring a quarterly payment on preferred securities. CONTINUED CONCERN AT SOCAL EDISON Concern this week focused on Southern California Edison, where a number of unsecured creditors -- mostly small power generators who rely heavily on income from the utility -- began considering plans to push the utility into involuntary bankruptcy. Officials at the utility's parent company said on Friday they believed Southern California Edison was in a strong position to fight involuntary bankruptcy, which they said would cause the state's power crisis to spin out of control. ``We believe we have solid grounds on which to oppose,'' said Barbara Mathews, an assistant general counsel for SoCal Edison, in an investor conference call. ``We believe that bankruptcy court intervention isn't necessary or in anyone's best interest right now.'' Edison International Chief Financial Officer Ted Craver said the solution to the utilities' woes ``is very much tied up in the political process'' -- but said it should come soon. ``People's patience is getting short. We really need a solution and we need it soon,'' he said. Wall Street, which has been watching California's lurching efforts to resolve its energy crisis, clearly agrees. Edison International shares closed on the New York Stock Exchange down $1.35, or 9.9 percent, at $12.24, less than half their 52-week high of $26.5625. PG&E shares closed on the Big Board down $1.50, or 11.6 percent, at $11.42, compared to their 52-week high of $31.8125. ****************************************** Friday March 16, 9:40 pm Eastern Time Judge delays ruling on Calif. emergency power sales SACRAMENTO, Calif., March 16 (Reuters) - A federal judge on Friday delayed until next week his decision on whether to extend an order requiring four independent energy companies to sell electricity to the California power grid operator. U.S. District Court Judge Frank Damrell put the case on hold until March 20 following a lengthy hearing Friday in which lawyers for Reliant Energy Inc. (NYSE:REI - news), Williams Cos. Inc. (NYSE:WMB - news), AES Corp. (NYSE:AES - news) and Dynegy Inc. (NYSE:DYN - news) argued their companies should be released from an order to sell power to the California Independent System Operator (ISO), citing fears of not being paid. Utility industry and government officials said Damrell was widely expected to extend the order, a move that would keep in place a Feb. 6 restraining order requiring Reliant to continue emergency sales to the ISO. The order was later expanded to include the other suppliers on the strength of state lawyers' arguments that the power was needed to avoid blackouts. Back in January, when a severe lack of electricity triggered two days of rolling blackouts, the ISO was thrust into the position of securing emergency power on a daily basis to close the gap between surging demand and scant supplies. The four energy merchants have repeatedly argued before Judge Damrell that deals with the ISO poses a major credit risk. The ISO's credit rating was badly damaged when two of its biggest customers, the utility subsidiaries of PG&E Corp. (NYSE:PCG - news) and Edison International (NYSE:EIX - news), ran out of cash earlier this year buying electricity in the region's volatile spot market. Facing a combined $13 billion debt, the two utilities now depend on the long-term contracts negotiated on their behalf by the state's Department of Water Resources and spot market purchases by the ISO to supplement power generated at their own plants. The Department of Water Resources does not pose the same thorny problem for the energy merchants as the ISO since it draws on the state's still solid credit rating. Meanwhile, the ISO, which oversees about 75 percent of the California transmission grid, is currently buying up to 4,000 megawatts of power a day -- enough to supply four million homes -- to make up for what has not already been secured through contracts. At today's hearing, lawyers for AES, Williams and Dynegy told the court the three companies had volunteered to extend their sales to the ISO prior to Friday's hearing. Houston-based Reliant said it was willing to abide by an extended interim agreement with the ISO through May. ************************************** Friday March 16, 6:42 pm Eastern Time SoCal Edison says ready to fight any forced bankruptcy By Jonathan Stempel NEW YORK, March 16 (Reuters) - Southern California Edison, one of the two utilities struggling to survive California's power crisis, said on Friday it is in a strong position to fight off a push by some of its creditors to force it into involuntary bankruptcy. The utility's parent, Edison International (NYSE:EIX - news), made its statements late on Friday, a day its shares fell almost 10 percent. The decline follows a federal court ruling this week that Caithness Energy, one of SoCal Edison's unsecured power providers, could place a lien on the utility's Mojave power plant. It also came after reports surfaced that Coram Energy, another provider, is circulating a petition among five other providers to push SoCal Edison into bankruptcy involuntarily, so that it can get paid for power it has already provided. The push comes at a time California legislature is reportedly stalled on talks to allow SoCal Edison, the state's No. 2 utility, and No. 1 utility Pacific Gas & Electric Co. to recoup more than $13.7 billion of wholesale power costs they cannot collect because of a rate freeze imposed under California's failed 1996 utility deregulation. The cash crunch has already triggered periodic rolling blackouts in the nation's most populous state. ``We believe we have solid grounds on which to oppose'' an involuntary bankruptcy filing, said Barbara Mathews, an assistant general counsel for SoCal Edison, in an investor conference call conducted by Rosemead, Calif.-based Edison International. ``We believe that bankruptcy court intervention isn't necessary or in anyone's best interest right now.'' A bankruptcy filing would cause California's power crisis to spin out of control, said Ted Craver, Edison International's chief financial officer, in the call. ``The solution is very much tied up in the political process,'' he said. ``People's patience is getting short. We really need a solution and we need it soon.'' SoCal Edison, which serves 11 million Californians, and Pacific G&E, which serves 13 million, and their parents, have already missed a variety of payments or are otherwise in default of various agreements. POWER GENERATORS ORDERED TO REFUND $55 MILLION Pacific G&E said on Friday in a filing with the U.S. Securities and Exchange Commission it intends on April 2 to make quarterly interest payments on its commercial paper, but is deferring a quarterly payment on preferred securities. PG&E said in another filing it had transferred $1.1 billion of its $1.2 billion tax refund to the utility. Meanwhile, the Federal Energy Regulatory Commission on Friday ordered six power generators to refund $55 million to the utilities for overpriced February wholesale power sales. Edison International shares closed on the New York Stock Exchange down $1.35, or 9.9 percent, at $12.24. PG&E shares closed on the Big Board down $1.50, or 11.6 percent, at $11.42. In the conference call, Craver also questioned an article from Dow Jones News Service suggesting that negotiations with California legislators are going nowhere. The article quoted an unnamed senior SoCal Edison executive as saying negotiations by California with its three investor-owned utilities to buy their power lines will ``never see the light of day.'' The executive also reportedly said SoCal Edison, which agreed in principle last month to sell its part of California's power grid to the state for $2.76 billion, is ``nowhere closer to a final agreement.'' The pace of negotiations has ``certainly slowed down,'' Craver said, but added: ``I don't think that a number of those statements there accurately reflect what's going on. We are in active discussions with the Governor's office. We're scratching our heads to determine who this mysterious person is who made these comments.'' Craver said SoCal Edison, meanwhile, decided on Friday to make an $8 million payment on first mortgage bonds it had missed 60 days ago, in order to avoid having to repay $225 million of principal immediately. Separately, he said Edison International and its utility unit remain in discussions with bankers who had agreed to ``forbear,'' or not act upon, defaults on three credit lines through Wednesday. ``Our bank forbearance agreement expired two days ago,'' said Craver. ``We have initiated discussions with the banks earlier this week. Those discussions continue.''
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