http://www.sierratimes.com/archive/starticles/2001/apr/arst01-040701.htm
PG&E Bankruptcy Bombshell Deepens California Energy Crisis
by Andrew Quinn - Reuters - 04.07.01
SAN FRANCISCO (Reuters) - California's energy crisis lurched into a dangerous
new phase on Friday as Pacific Gas & Electric, the state's largest utility,
declared bankruptcy and accused Gov. Gray Davis of woefully mismanaging the
emergency.
While officials vowed that the largest utility bankruptcy in U.S. history
would not turn the lights off for the 13 million Californians Pacific Gas &
Electric serves, it threw a new question mark over the state's ability to get
through the summer without more power blackouts.
The bankruptcy filing came just one day after Davis outlined a bailout
strategy designed to help the cash-strapped utility back to its feet after
months of bleeding money thanks to California's botched 1996 power
deregulation law.
Pacific Gas & Electric blamed Davis for forcing it into bankruptcy, saying
his plan to save it was unacceptable and charging that in the last three
weeks the governor had only bothered to hold one face-to-face meeting to
bargain directly with the utility.
"The regulatory and political processes have failed us, and now we are
turning to the court,'' Robert Glynn, chairman of Pacific Gas & Electric,
said in a statement.
Davis reacted angrily, saying the massive utility had ''dishonored itself''
by asking for bankruptcy protection.
"PG&E was not pushed into bankruptcy but plunged themselves into bankruptcy
for their own strategic advantage -- not the best interests of the people of
California,'' Davis said.
Analysts said the filing marked the biggest utility bankruptcy in U.S.
history and could throw a wrench into Davis' efforts to resolve the power
crunch hobbling the nation's most populous state.
In its Chapter 11 filing with the U.S. Bankruptcy Court for the Northern
District of California, the utility said it owed close to $9 billion because
state power deregulation laws block utilities from passing along skyrocketing
wholesale power costs to consumers.
This law, combined with soaring demand and a lack of new power plants, has
created a disastrous energy crunch in California and already caused four days
of rolling blackouts across the state and forced state agencies to spend more
than $50 million per day for emergency power purchases.
More blackouts are feared this summer as higher temperatures lead to
increased energy demand, and the growing uncertainty over Pacific Gas &
Electric's future Friday only added to fears of continued chaos.
"This certainly changes the situation pretty significantly and will probably
lengthen the crisis rather than shorten it,'' said Gerald Keenan, lead
strategy partner at PricewaterhouseCoopers.
Utility Will Continue To Operate
Pacific Gas & Electric is a unit of PG&E Corp. which did not file for court
protection. The utility, which serves a vast stretch of northern and central
California, said it would operate ''subject to the jurisdiction of the
Bankruptcy Court,'' meaning the lights will stay on for its customers.
The utility has 15 days to complete the paperwork for the bankruptcy filing,
and Federal Bankruptcy Judge Dennis Montali has set a May 8 meeting to
discuss the next step.
In a statement, PG&E Corp. Chairman Robert Glynn said the utility felt that
talks with regulators and the Davis administration had failed, leaving it no
choice but to turn to the court as the best venue to protect its shareholders.
With unrecovered costs increasing by more than $300 million per month, Glynn
accused Davis of ignoring the deepening financial peril of a company that has
been a pillar of California business for almost 100 years.
The last straw, Glynn said, was Davis' live television speech on Thursday
evening in which the Democratic governor said that any bailout deal would
hinge on the utilities' agreement to sell their vast power transmission grid
to the state -- a demand that Pacific Gas & Electric has resisted.
"We listened carefully to the statement and the commentary that followed and
this decision is the result,'' Glynn told a news teleconference following the
bankruptcy filing.
Confusion In Sacramento
For Davis, who had billed his Thursday speech outlining rate hikes and
conservation as a major step toward resolving the energy crisis, the
bankruptcy move came as a shock.
While upbraiding Pacific Gas & Electric's "selfish'' move, Davis pledged
Friday to continue bailout negotiations with Edison International unit
Southern California Edison (news - web sites) and hoped to have a result
within days, "proving that negotiation, not bankruptcy, is the appropriate
path.''
But Glynn said Davis' concentration on the Southern California Edison talks
had cost PG&E dearly, noting that it had been three weeks since the two sides
had had "face-to-face'' talks before one meeting during the last couple of
days. "The negotiations we have been involved in since last November are
going nowhere. Progress has dramatically slowed,'' he said.
Southern California Edison, which like Pacific Gas & Electric is saddled with
billions of dollars in debt thanks to the power crisis, issued a statement
expressing regret over the bankruptcy filing and pledging to work to avoid
the same fate.
"We at Southern California Edison continue to believe that working out a
comprehensive solution to our current crisis is a preferable course to take.
(Today's) decision does not change our position,'' John Bryson, Edison
International's chief executive, said in a statement.
Creditors Hope Bankruptcy May Help
Power wholesalers owed millions by the debt-shattered utility said Friday
they hoped the bankruptcy filing will help end a deregulation-sparked credit
crisis.
"We think it's unfortunate they were forced to take that step,'' Dynegy Inc.
spokesman John Sousa said. "But we're hopeful that today's action could
actually be a catalyst toward in moving forward toward a long-term solution.''
Nevertheless, the bankruptcy move stoked fears among a host of power
merchants and generators, including Dynegy, Reliant Energy Inc., Enron Corp.,
Duke Energy Corp., Mirant Corp. and Williams Cos. Inc., that they may not
recover the money they are owed -- leading to questions on whether they would
sustain the energy flow.
Davis and other administration officials vowed to plow ahead with their
crisis plan, including a proposed $10 billion bond issue to fund the state's
emergency power purchases.
State Treasurer Phil Angelides said that in fact the bankruptcy may move the
entire crisis toward resolution, helping the state issue the debt as well as
close a $4.125 million bridge loan announced earlier this week to replenish
the general fund for money already spent on power.
"We are moving forward,'' Angelides told Reuters in a telephone interview.
"It could increase certainty in the process because certain agreements will
now have to go through a court.''
Senator To Push For Price Caps
Democratic California Senator Dianne Feinstein said the bankruptcy filing
marked a "sad day for California,'' and vowed to introduce legislation to
force federally mandated price caps for the entire Western region -- a move
the Bush administration has rejected.
A leading member of the California Public Utilities Commission (CPUC), which
regulates the state's utilities, said meanwhile that the filing was "a
self-serving and cynical move by PG&E's management to protect shareholders at
the expense of the company's ratepayers.''
"I am very unhappy about it,'' Carl Wood told Reuters.
While both state officials and industry analysts said the bankruptcy filing
would have no immediate effect on power supplies to PG&E's customers, news of
the utility's move into Chapter 11 sent its shares into a tailspin.
Trading was halted in PG&E shares on Friday before the utility and its parent
disclosed the filing.
After trading was resumed, shares in PG&E and Rosemead, Calif.-based Edison
International, the parent of SoCal Edison, plunged.
PG&E shares closed at $7.20, down $4.18, or 36.73 percent. Edison shares
ended on the Big Board at $8.25, down $4.39, or 34.73 percent. Both were off
their lows for the day.
