04/09 03:32 Edison Rescue Options Dwindle in Wake of PG&E Unit Bankruptcy By David Ward

Rosemead, California, April 9 (Bloomberg) -- PG&E Corp.'s decision to seek bankruptcy protection for its utility increases the chances that Edison International's Southern California Edison will follow suit, analysts say.

Pacific Gas & Electric and Southern California Edison, the state's two largest investor-owned utilities, are strapped with billions in debts and fixed utility rates, the product of a flawed deregulation. Efforts by state officials to rescue PG&E's utility failed.

Edison executives say they hope a rescue package can be reached. California Governor Gray Davis said only a ``few remaining issues'' need to be resolved to reach an agreement that would provide Edison with billions to pay down past debts. Political and financial analysts aren't so optimistic.

``There's a real resistance to bailing these people out,'' Senate President Pro Tem John Burton said on Saturday of Davis's negotiation efforts. ``Legislators of both parties aren't really inclined to do a bailout.''

Creditors Hovering

``A PG&E bankruptcy makes a similar filing by Edison of its creditors more likely,'' Merrill Lynch & Co. utilities analyst Steve Fleishman wrote in a note to clients Friday. Fleishman has a ``near-term accumulate rating on Edison.

Morgan Stanley Dean Witter analyst Kit Konolige lowered his rating on both PG&E and Edison shares to ``neutral'' following PG&E's filing Friday. ``Bankruptcy process likely to continue for years, limiting upside,'' Konolige wrote.

Edison has $5.465 billion in debt, according to its most recent Securities and Exchange Commission filing. If the utility goes into bankruptcy, power sales made after the filing would be first in line for payment.

Under California's 1996 deregulation law, the wholesale price of electricity was allowed to float, while the price utilities could charge was fixed. Soaring wholesale prices last year led to the mounting debts.

Governor Davis and his financial advisers are negotiating with Edison to buy its transmission lines. If the agreement is reached, the utility would issue bonds backed by utility rates to pay debts.

Negotiations

``When we resolve our differences, I think that I can prove demonstratively that negotiations, not bankruptcy, is the path to resolve these differences,'' Davis said on Friday.

Edison Chief Executive John Bryson met with Davis on Friday, said Steve Maviglio, a spokesman for Davis. Talks in San Francisco continued ``around the clock'' this weekend, he said. Edison has assured the state that it won't seek bankruptcy, Burton and Davis said.

``We at Southern California Edison continue to believe that working out a comprehensive solution to our current crisis is a preferable course to take,'' Bryson said in a statement released Friday.

Legislators questioned whether Davis could win approval for any agreement with Edison. An agreement to buy transmission lines or authorize utility rates to pay back bonds would need legislative approval.

``It will get more complicated,'' Democratic State Senator Sheila Kuehl said.

In March, Davis announced a preliminary agreement under which the state would buy Edison's transmission lines for $2.76 billion, 2.3 times their book value. Edison would issue bonds to pay down past debts backed by the so-called dedicated rate component.

That may face opposition in the Democratic-controlled state Legislature, Democratic Senate Leader Burton said.

``They talk about a dedicated rate component. I don't think that flies,'' Burton said. ``They talk about 2.3 times book for transmission lines. That may not be fair market value (and) that may be too high.''

Work on an agreement is being done ``an eye on it passing the Legislature,'' Maviglio said. Legislators ``should wait to judge until they see a final agreement.''

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-- Carl Jenkins (somewherepress@aol.com), April 09, 2001