March 30, 2001
PG&E May Take $4.1 Bln Charge as Calif. Calls Alert (Update2)
(Sacramento, California) PG&E Corp., owner of California’s largest utility, said it may take a fourth-quarter charge of $4.1 billion. Also today, the state power grid manager called a power emergency because of a shortage of electricity reserves.
PG&E and Edison International, owner of California’s No. 2 electric utility, are on the verge of bankruptcy after piling up more than $13 billion in power-buying losses. The two utilities’ financial problems are contributing to a shortage of power in the state.
“People are finally starting to deal with reality,” said Jonathan Rosenthal, a partner at Saybrook Capital LLC in Santa Monica, California. “PG&E was more candid and forthright about the prospects of creditors getting paid.”
Power reserves in the state dropped below 5 percent, leading the state power grid manager to declare a Stage 2 emergency at 9:09 a.m. If reserves drop to 1.5 percent, the California Independent System Operator can order rolling blackouts throughout the state.
The drop in power reserves is partly a result of some generators’ “financial concerns,” the ISO said. Enough power to light 3 million homes is unavailable today because some generators have stopped producing electricity after not being paid since November.
San Francisco-based PG&E said it may take a charge of about $6.9 billion, or $4.1 billion after taxes, to write off power-purchasing debts that it won’t be able to collect.
On Tuesday, California’s Public Utilities Commission ordered PG&E and other utilities to offset power-purchase debts with profit from power-plant sales, and revenue from plants they still own. That reduces the amount of debt the PUC will use to determine how much the utilities can recover from customer rates.
PG&E said stockholder equity may be pushed below zero because the PUC ruling may force it to take additional charges this year to account for surging power prices. PG&E said it will fight the ruling.
PG&E and Edison both are seeking regulatory approval to postpone reporting fourth-quarter earnings until April 17. The two companies were expected to report fourth-quarter results by Monday, the final day they could release earnings under Securities and Exchange Commission rules.
“We must analyze these complex decisions to determine their potential effects on our financial results, including possible earnings charges, and that will take some time,” Edison Chief Financial Officer Ted Craver said in a statement.
Rosemead, California-based Edison said in an SEC filing it may write off as much as $2.7 billion because of the PUC ruling.
California’s three investor-owned electric utilities — PG&E’s Pacific Gas & Electric, Edison’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric — are negotiating a sale of their transmission assets to the state.
A sale of the 32,000 miles of high-capacity lines would allow PG&E and Edison to pay some of their debts. Last month, Edison reached a tentative agreement with the state to sell its power lines for $2.76 billion.
A final agreement is expected soon, followed by agreements with PG&E and then Sempra, said Joseph Fichera, chief executive of Saber Partners LLC and California Governor Gray Davis’s top financial adviser in the negotiations.
PG&E has been told by the state that “substantive discussions” are expected to resume next week regarding a settlement, including a purchase of its power grid, Peter Darbee, PG&E’s chief financial officer, said in a conference call with investors. There have been “no substantive discussions” over the last couple weeks, he said.
Fichera said this week that Davis’s negotiation team will wrap up talks with Edison first because “Edison is much farther along.” The team will then focus on PG&E, he said.
A transmission-grid purchase may face problems when it reaches the legislature, which must approve it. Some lawmakers said they are concerned about the cost, particularly when coupled with electricity-rate increases for California consumers.
Regulators approved the $4.8 billion rate increase on Tuesday. Meanwhile, the state is planning to sell as much as $12.4 billion in bonds to pay for past power purchases, and is considering another $9 billion to $10 billion to buy the transmission grid.
Public outcry, including protests in San Francisco and Sacramento this week, hurts the prospects of bills authorizing more spending on the power crisis, lawmakers said.
“I think it’s going to be very difficult to tell people that, not only are we imposing rate increases on you, but now we are imposing a $10 billion surcharge on you to buy transmission lines,” said state Senator Tom McClintock, a Republican from Thousand Oaks.
Even before the rate increase, Republican lawmakers opposed the purchase of the utilities’ transmission lines, saying that running power grids was a job better left to private enterprise.
Democrats, led by Davis and Senate President John Burton, said they proposed buying the grid so taxpayers would get something to offset the expense of the utility bailout. Some Democrats now say they will take a harder look at the plan because of the increasing costs of the power crisis to taxpayers.
–Daniel Taub in (Sacramento, California) (310) 770-1292 or email@example.com, with reporting by Christopher Martin in San Francisco, Dennis Walters in Ojai, California) Liz Goldenberg in New York, and Anna Marie Stolley in (Sacramento, through the San Francisco newsroom (415) 912-2980/dfr/gcb/dfr