Moody's warns Calif. crisis isn't over

By Lisa Sanders, CBS.MarketWatch.com Last Update: 5:31 PM ET Feb 27, 2001 NEW YORK (CBS.MW) -- Moody's Investors Service warned Tuesday that California's power crisis is far from over and that there are factors that could worsen, instead of improve, the situation.

The comments come as Gov. Gray Davis attempts to negotiate the state purchase of transmission wires from Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

The purchases are part of an effort to reign in spiraling power prices that have pushed Pacific Gas & Electric (PCG: news, msgs, alerts) and SoCal Edison (EIX: news, msgs, alerts) to the brink of bankruptcy.

The rating agency cautioned that credit issues and political problems could derail both the plans to buy the transmission systems and a state plan to issue bonds to buy power.

"If the state's plan results in significant rate increases for consumers, the emerging fragile consensus could come apart, delaying actions to address the crisis, and damaging the state's economy," the rating agency noted. "Significant rate increases also raise the risk of a voter initiative, which could derail the state's plans."

California expects to issue as much as $10 billion worth of revenue bonds backed by electricity rates to pay for power.

FRONT PAGE NEWS Greenspan: No intermeeting cut needed Japan central bank to lower interest rates AT&T, Charter in $1.8 billion cable deal DoCoMo plans $1.7 bln bond offering Disney, Coke team up for Mickey, Pooh drinks "The Governor has expressed the goal that all of the new state debt, as well as the ongoing needs of the electric system, can be funded within the existing rate structure...But this remains to be seen," Moody's analysts wrote.

The issuing agency is the state Department of Water Resources, which could not be reached for comment. Also unavailable for comment was the state treasurer's office, which is helping to structure the bond issues along with an underwriting team led by J.P. Morgan Chase & Co.

Moody's went on to say that bankruptcy remains a very real possibility for Pacific Gas & Electric, a division of PG&E (PCG: news, msgs, alerts) , and SoCalEd, a unit of Edison International (EIX: news, msgs, alerts) , unless action is taken. The two utilities have run up close to $13 billion worth of debt.

"A filing would likely exacerbate the state's electricity shortages and reliability problem, and introduce uncertainty regarding the control of utility assets," Moody's said.

Moody's also said that the supply-demand imbalance could become worse this summer, given the fact that the power crisis emerged during what is usually a time of low demand for electricity.

"Peak demand begins in May 2001 and during the summer months can reach 18,000 megawatts higher than winter demand peaks," Moody's wrote.

Moody's concluded: "A possible state bailout faces the difficult challenge of reconciling consumer interests with a viable power market."

Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com.

http://www2.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B74679407%2D97B5%2D4B99%2DB491%2DE8434E83F043%7D

-- Martin Thompson (mthom1927@aol.com), February 28, 2001