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----- Forwarded by Elizabeth Sager/HOU/ECT on 12/20/2000 06:12 PM -----
"JOHN G KLAUBERG" <JKLAUBER@LLGM.COM< 12/20/2000 04:38 PM To: Elizabeth.Sager@enron.com, shari.stack@enron.com cc: Subject: Fwd: PGE default warnings issued fyi "This e-mail, including attachments, contains information that is confidential and it may be protected by the attorney/client or other privileges. This e-mail, including attachments, constitutes non-public information intended to be conveyed only to the designated recipient(s). If you are not an intended recipient, please delete this e-mail, including attachments and notify me by return mail, e-mail or by phone at 212 424-8125. The unauthorized use, dissemination, distribution or reproduction of the e-mail, including attachments, is prohibited and may be unlawful. John Klauberg LeBoeuf, Lamb, Greene & MacRae, L.L.P. 212 424-8125 jklauber@llgm.com Content-Transfer-Encoding: quoted-printable Content-Type: text/plain; charset=us-ascii Content-Disposition: inline =20 Wednesday December 20, 4:56 pm Eastern Time Calif. utilities risk imminent default, S&P warns (UPDATE: Recasts, adds details, background. Adds byline) By Jonathan Stempel NEW YORK, Dec 20 (Reuters) - Pacific Gas & Electric Co. and Southern = California Edison are at grave risk of default and bankruptcy within = weeks, and are likely to see their high credit ratings fall to low junk = grades if they do not get regulatory help by Friday, credit rating agency = Standard & Poor's said on Wednesday. ``S&P is prepared to take dramatic rating action,'' said Richard Cortright,= an S&P analyst, in a conference call. ``The ratings are expected to drop = deeply into speculative grade to reflect the likelihood of imminent = default.'' The agency assessed the situation as the California Public Utilities = Commission prepared to meet Thursday to consider whether to allow Pacific = G&E and Southern California Edison to pass on at least some of their = skyrocketing wholesale electricity costs to consumers. Shares of PG&E Corp.(NYSE:PCG - news), the parent of Pacific G&E, closed = Wednesday on the New York Stock Exchange at $20-15/16, down $1-7/16, or = 6.42 percent. Shares of Edison International (NYSE:EIX - news), the parent = of Southern California Edison, closed at $17-7/8, down $1-1/8, or 5.92 = percent. The utilities operate under a rate freeze through March 2002, and are also = unable to negotiate long-term supply contracts. These factors expose them = to the vagaries of the volatile spot power market. Wholesale power recently cost more than $1,400 per megawatt hour, a more = than 40-fold increase over the $35 per megawatt hour rate last year. California imposed the rate freeze as part of its deregulation of the = utilities sector, which was intended to promote competition and consumer = choice. Among the options the commission has to remedy the situation are a hike in = the utilities' price caps. Even that, however, would constitute a ``band-aid on a bullet wound,'' = said Ron Barone, who leads S&P's utility group and also participated in = the conference call. Californians have already been warned to cut back their energy use, and = that they may be subject to rolling blackouts. Cortright said unless the commission offers the utilities significant = regulatory relief, Pacific G&E and Southern California Edison will be = dependent on the capital markets for cash infusions, if any are available. ``There are bills that are coming due in January and February,'' he said. = ``We would be naive to think that the capital markets are going to open = their doors to satisfy (their needs) in the current environment.'' ``To be frank,'' he added, ``we are amazed that events have been permitted = to reach anywhere near this critical stage. It truly is unfathomable. We = really do need some emergency actions taken now.'' Pacific G&E last completed a big bond sale in October, selling $1.35 = billion of bonds. Southern California Edison and its parent, Edison = International, sold an equivalent amount in early November. Both companies carry ``A-plus'' corporate credit ratings and ``single-A'' = senior unsecured debt ratings. Pacific G&E's secured debt carries an = ``AA-minus'' rating. Those ratings are considered mid to high investment = grades. One trader said Southern California Edison's debt began on Tuesday being = quoted by price, like junk bonds, instead of by the extra yield they offer = relative to similar maturity U.S. Treasuries, like investment-grade bonds. Its 5.875 percent notes maturing in September 2004 were quoted Wednesday = at about 87 cents on the dollar, yielding about 11.3 percent to maturity. = No price quotation was immediately available on Pacific G&E's debt.=20
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