Cash-Strapped Utilities Still Trying To Buy Time From Bank, Creditors
The daily involuntary bankruptcy watch continued Thursday for the state’s two largest utilities, as banks for Southern California Edison and Pacific Gas & Electric continued to offer forbearance on hundreds of millions of dollars in unpaid bills.
SCE, the Rosemead-based utility arm of Edison International, said it remains in discussions with its bankers about whether they will give the company more time to make good on a $230-million default, a day after PG&E; Corp.’s utility unit reported that its banks had agreed to give it until March 6 to pay its bills.
Meanwhile, an informal “community of creditors” representing many billions of dollars in utility debt is being organized by Santa Monica-based Saybrook Capital, which represented more than 200 agencies and cities that lost money in the Orange County investment pool, a financial meltdown that led to the 1994 Orange County bankruptcy filing.
The group is not a formal creditor committee because it cuts across several classes of creditors. And its purpose, unlike with most committees, is not to prepare for the possibility of a bankruptcy filing but to help organize and inform those owed money “so that a rogue creditor doesn’t push these companies into bankruptcy,” said Jonathan Rosenthal, a Saybrook partner.
At least two formal committees of utility creditors have organized. Orange County Treasurer John Moorlach formed a committee of unsecured creditors Jan. 19, and electricity generators Reliant Energy, Dynegy Inc. and Mirant Corp. created a committee Feb. 9.
Indeed, a top executive of San Jose-based power plant operator Calpine Corp., speaking Thursday at an investors conference in New York, said unnamed generators may force the two utilities into bankruptcy within a week if the state does not address the issue of unpaid bills quickly.
“The fuse is short. The Legislature cannot let the creditors sit out and stew much longer,” said Calpine Executive Vice President Thomas Mason. But Mason, quoted by Bloomberg News, said his company would not push SCE or PG&E; into bankruptcy.
For their part, the utilities have said they would end up in bankruptcy court only if dragged there by creditors. SCE and PG&E;, which no longer can borrow money, have stopped paying most bills to preserve cash. The two have amassed more than $12 billion in debt because they cannot pass high wholesale electricity costs to customers, who are protected by a rate freeze.
The utilities’ unsecured creditors--including large power plant owners and hundreds of small electricity generators whose debts are not backed by utility assets--are considered more antsy than the banks, which have many incentives to be forbearing.
Banks such as JP Morgan Chase and Bank of America know that if they run out of patience and force SCE or PG&E; into bankruptcy, the ripple effect could harm the utilities’ customers, suppliers and investors--many of whom also are clients of the banks, Moorlach said.
“So who wants to pull the trigger and create that kind of negative impact?” said Moorlach, whose county has invested more than $40 million of public school funds in Edison notes.
JP Morgan Chase and Bank of America did not return calls seeking comment.
Forcing bankruptcy on the utilities also would disrupt the entire California economy, causing even more widespread hardship for the banks’ activities in the state, said Shannon Burchett, chief executive of Risk Limited Corp., a strategic consulting firm in Dallas that specializes in energy firms.
“There’s the potential for collateral damage, and here the collateral damage is the whole state,” he said.
The threat of action by generators remains a bigger worry for SCE and Edison.
Unless California quickly resolves how the generators will get paid, “they are the ones I believe that . . . will have less patience and less concern about corporate goodwill in terms of being the ones to pull the trigger,” warned a source involved in negotiations among the utilities, the state and the lenders, who asked not to be identified.
Edison International shares gained 6 cents to close at $12.31, and PG&E; rose 34 cents to $12.84, both on the New York Stock Exchange.
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The Times’ comprehensive coverage of the state’s electricity crisis is available at https://www.latimes.com/power.
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