Calif. energy bill may hit $1.3 billion

Davis orders more state funds be used to keep lights on

By Myra P. Saefong, CBS.MarketWatch.com 9:13 PM ET Jan 30, 2001 SACRAMENTO, Calif. (CBS.MW) - California may spend as much as $1.3 billion buying electricity before the state finds a fix for its power troubles. The state exhausted $400 million appropriated earlier this month for emergency purchases to keep lights on in just 12 days.

Calif. Gov. Gray Davis ordered the state Monday to spend up to $400 million additionally to buy power with money from the Department of Water Resources budget.

And on Tuesday, the Senate Appropriations Committee began discussing a bill that would set aside still another $500 million to continue short-term purchases while the state negotiates long-term-contracts.

Shares of PG&E Corp. and Edison International rose sharply Tuesday, as California's lawmakers worked on a plan to keep the utilities solvent and maintain the state's power reserves.

Davis' decision to continue buying power will keep the lights on for the time being.

But the moves have raised concerns on Wall Street about the state's credit rating.

On Tuesday, State Treasurer Philip Angelides said he's doesn't expect California's credit rating to suffer as a result of the energy crisis. See related story.

Also Tuesday the state's power exchange said it would stop making a market in the day-ahead and same-day electric markets. See related story.

And in Washington energy experts warned lawmakers Tuesday that high, volatile energy prices could threaten to undermine the U.S. economy in years to come. See full story.

PG&E shares (PCG: news, msgs) added $1.21 to close at $15.23 Tuesday and shares of Edison (EIX: news, msgs) rose by $1.32 to $14.40.

Davis and legislative leaders agreed Friday on a plan to resolve California's electricity crisis that includes public ownership of two huge utilities and years of power-buying by the state.

Confidence in the state legislature's efforts has prompted several brokerages to upgrade their ratings on the PG&E and Edison, the parents of California's biggest utilities. More meetings were held Tuesday, but a vote on the plan wasn't seen happening before Wednesday.

On Tuesday, Prudential Securities upgraded its rating on PG&E to a "hold" from a "sell" Banc of America raised its rating to a "buy" from a "market performer."

A.G. Edwards raised both PG&E and Edison to "buy" from "maintain position" stocks Tuesday. A day earlier, Morgan Stanley Dean Witter, upgraded its ratings on both companies to "outperform" from "neutral."

The companies' utility units, Pacific Gas & Electric and Southern California Edison, have claimed that they face bankruptcy because they're forced to buy power at high wholesale rates and cannot pass on the costs to customers under the state's frozen retail rates.

On Wednesday the California Public Utilities Commission will meet to consider a plan to have Southern California Gas buy natural gas on behalf of Pacific Gas & Electric Co.

An audit of Southern California Edison, ordered by the California Public Utilities Commission last month, was released late Monday, showing that as of the end of December, the utility had an undercollected balance of $4.5 billion. In the last five years SCE has paid dividends and distributions to its parent company of $4.8 billion. See related story.

A similar audit on Pacific Gas & Electric was expected to be released Tuesday, but hadn't appeared on the PUC's web site by late in the day.

Wednesday was declared a "power watch" day by the state's electric grid operator and the state appeared headed for the sixteenth-straight day with critically low energy reserves. The California Independent System Operator, which controls the bulk of the state's power grid, has declared "Stage Three" emergency alerts - its top power alert - every day since Jan. 16. Rolling blackouts hit the state Jan. 17 and 18. See related story and related energy crisis coverage.

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-- Martin Thompson (mthom1927@aol.com), January 31, 2001