Action Could Engulf Edison, Other Utilities
Pacific Gas & Electric Co.’s plunge into the relatively uncharted waters of utility bankruptcy threatens to swamp Southern California Edison and splash other utilities in the process, industry executives and analysts said Friday.
Edison stressed Friday that it has no intention of following PG&E;’s lead in filing for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. But executives of parent company Edison International warned that the utility still could be dragged into U.S. Bankruptcy Court by disgruntled creditors.
Indeed, Edison said, the danger of an involuntary filing against its utility subsidiary only grew Friday as a result of the action by PG&E;, one of few utilities to ever file for Bankruptcy Court protection.
“It raises the risk that people will get more discouraged,” said Ted Craver, chief financial officer of Rosemead-based Edison International.
But Edison remains “at an advanced stage” of discussions with advisors to Gov. Gray Davis about selling its transmission grid to the state as part of an overall fix for the utility’s financial meltdown, Craver said in a conference call with debt holders Friday.
In fact, Edison International Chief Executive John E. Bryson met Friday with Davis--a meeting set before the filing by Pacific Gas & Electric, a subsidiary of PG&E; Corp., which did not file for bankruptcy protection.
Still, Craver warned, “It’s a very short time frame to get to where we need to get. . . . Every creditor committee, real and imagined, is talking about this today.”
Edison sees no benefit to a trip to Bankruptcy Court, Craver emphasized.
“We worry that a bankruptcy filing might magnify the electricity crisis in California,” he said.
Bankruptcy would make it more difficult and expensive for the utility to operate and might make electricity sellers leery about selling to the state, he said.
“We still believe it is best for Edison, and for our creditors and for our shareholders and for our customers, not to file for bankruptcy protection,” Craver said.
Another senior utility executive said electric system reliability could be hurt by a bankruptcy proceeding because, among other things, funds now spent to improve and maintain equipment could instead be used to pay off creditors. What’s more, employees would not be protected from layoffs if a bankruptcy judge should deem job cuts necessary.
Despite Edison’s assurances, workers are worried.
“Sure, we’re nervous,” said Pat Lavin, business agent for the International Brotherhood of Electrical Workers Local 47, which represents SCE linemen. “These two utilities pretty well go hand in hand. They’re the two largest in the world and they’re in the same financial condition.”
Reflecting that peril, credit-rating firm Fitch Inc. moved Southern California Edison’s senior secured debt down a notch to CCC from B-minus. Edison’s other debt was left unchanged but moved from “evolving” to “negative” in outlook.
Utility analyst Brian Youngberg of Edward Jones & Co. in St. Louis noted that any deal to sell the transmission lines to the state to raise money for the utilities would become more difficult if PG&E; is ensnared in Bankruptcy Court.
Craver said such a transaction would be more complicated without PG&E; but not impossible.
San Diego Gas & Electric Co. is in much better shape than the other two utilities because it has a legislative promise that it will be able to recover its electricity costs, which were capped in September, said Stephen L. Baum, chairman and president of Sempra Energy, SDG&E;’s parent company.
SDG&E; paid off its old deregulation-related debts early, so its customers’ rates were unfrozen in 1999. Those electricity users were the first to feel the pain of exploding wholesale electricity prices last summer.
“We’re OK down here--for the day, anyway,” Baum said.
“We’re nowhere near bankruptcy. The only conditions that could bring us close to bankruptcy would be if the state were to stop buying our net short position”--the electricity that the utilities no longer are able to purchase in the open market, Baum said. “We’re not even on the beginning of that trail.”
Although SDG&E;’s financial condition is different from that of the two other big utilities, “We’re not different in what happens in California, to our customers, to its people, to its economy,” Baum said.
Both Baum and Craver expressed hope that the PG&E; bankruptcy might hasten a solution.
“I don’t think anyone really wanted it to happen, but now that it’s happened, you’ll have a bankruptcy judge who will set schedules and he will, or she will, insist upon a plan of reorganization of that company that will have to include . . . pressure on the state for rates to rise, to bring revenues more in line with costs,” Baum said.
Baum said all California utilities will be hurt by the PG&E; filing, which will make it more difficult for them to raise capital.
“All of us are impacted,” he said. “But I think the impacts on us are dwarfed by the impacts on California’s economy, by the impact on the customers.”
Analyst Douglas Christopher of Crowell, Weedon & Co. in Los Angeles agreed.
“This is negative for all utilities, even municipal utilities,” he said. “The environment is very negative. Because these companies are here, they get blanketed. It’s guilt by association.”
The utilities’ stocks plunged in the wake of the bankruptcy filing. PG&E; Corp. tumbled $4.18, or 37%, to close at $7.20 a share after a nearly three-hour halt in trading on the New York Stock Exchange. Shares of Edison International fell $4.39, or 35%, to $8.25, and Sempra was off $1.85, or 7.7%, at $22.30, both also on the NYSE.
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Times staff writers Nancy Cleeland and Thomas S. Mulligan contributed to this story.
