Posted at 6:48 a.m. PST Monday, Jan. 8, 2001

Fair use for educational/research purposes only

California Legislature on the spot in high-stakes poker game

BY MICHAEL LIEDTKE AP Business Writer

SAN FRANCISCO (AP) -- The battle over who should foot California's staggering electricity bill is becoming a political showdown pitting Wall Street financiers against Main Street consumers.

The tensions are likely to be reflected in Gov. Gray Davis's State of the State address Monday night as he seeks to send a reassuring message to the financial community without incensing the public.

``We are redoubling our efforts to approve a significant amount of new (power) generation,'' Davis said in a statement Sunday.

California's Independent System Operator and two major utilities reported no significant power problems over the weekend.

Southern California Edison and Pacific Gas & Electric officials are looking to Davis, state lawmakers and the federal government to provide long-term assistance to the companies and their customers this week.

``We're waiting like everybody else,'' PG&E spokesman Jonathan Franks said Sunday. ``We're just waiting to see what the governor and the Legislature are going to do.''

``We're certainly hopeful something may transpire this week,'' agreed SoCal spokesman Steven Conroy.

Investors and lenders want Davis and the Legislature to protect their interests by forcing California's utility customers to absorb the huge losses suffered by PG&E and SoCal Edison.

Wholesale electricity rates have skyrocketed since May -- a period when the two utilities' combined power costs have exceeded revenues by more than $10 billion.

The utilities want to pass on those costs to customers by raising rates more than 25 percent this year, with additional hikes later.

The California Public Utilities Commission last week approved temporary rate hikes ranging from 7 percent to 15 percent that sorely disappointed the utilities' financiers.

Also last week, Wall Street essentially issued an ultimatum to Davis and the Legislature: find a way to bail out PG&E and SoCal Edison or the utilities will likely wind up in bankruptcy court.

``The Legislature has to take the bull by the horns,'' said Richard Cortright, an analyst for Standard & Poor's in New York.

``It is our contention that the Legislature has all the tools to resolve this crisis. The only question is whether they have the political will.''

Meanwhile, lawmakers face a possible backlash from constituents if they raise electricity prices too much.

``Everyone should be concerned that Wall Street is using financial threats to extract a bailout from the Legislature,'' said Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights. ``The only thing that can counteract Wall Street now is an angry voting public.''

Stiff rate increases also could sap the spending power of households and businesses -- and further slow California's economy.

``We don't want to solve one financial crisis by creating another,'' said state Sen. Debra Bowen.

The utilities say they have enough cash to buy electricity for their customers for another three to seven weeks.

But PG&E says it will be declared in default on an $850 million credit line unless it improve its credit rating by early April.

SoCal Edison is in even worse shape than PG&E, according to S&P officials. Barring a legislative solution, SoCal Edison would probably be the first utility to file bankruptcy, S&P said.

In an effort to conserve its dwindling cash, SoCal Edison has reduced expenses by more than $500 million. The cost-cutting has included the suspension of its quarterly shareholder dividend and plans to eliminate 1,850 jobs, including contractors and temporary workers.

http://www0.mercurycenter.com/breaking/docs/AA4007.htm

-- Martin Thompson (mthom1927@aol.com), January 08, 2001

Answers

This is a typical Alphonse-Gaston act. Everybody seems to be standing around, waiting for somebody else to do "something."

-- JackW (jpayne@webtv.net), January 08, 2001.

Why is it this board is so far ahead of the national media? All this stuff about the big natural gas crisis that is hitting the mainstream news now I was reading about, here, six months ago.

-- QMan (qman@c-zone.net), January 08, 2001.