Pacific Gas and Electric, California's largest utility, filed for Chapter 11 bankruptcy protection today despite months of efforts by state officials to bail out the cash-starved company.
The utility's 13 million customers probably will be among the least affected, since bankruptcy proceedings allow companies to continue operating while trying to dig out of their financial hole.
But lenders, bondholders and power generators may have to write off billions advanced to the utility as losses. And the company's financial reputation could be damaged for years, making it more difficult to raise money to upgrade transmission lines and plants.
Turning to the Courts for Help
"The regulatory and political processes have failed us, and now we are turning to the court," company Chairman Robert D. Glynn Jr. said. "We expect the court will provide the venue needed to reach a solution, which thus far the state and the state's regulators have been unable to achieve." The company, a subsidiary of PG&E Corp., had run up an $8.9 billion deficit buying electricity as of Feb. 28. Like other California utilities, it has been pinched by skyrocketing wholesale power costs and the state's 1996 deregulation law barring rate increases. As of March 29, the utility had $2.6 billion in cash and outstanding bills of $4.4 billion. Shares of PG&E Corp. were halted on the New York Stock Exchange, where they last traded at $11.36, down 2 cents. The company provides natural gas and electric service across Northern and Central California. It has 21,500 employees.
Negotions With State 'Going Nowhere'
The bankruptcy filing came one day after Gov. Gray Davis, in a statewide address, proposed relieving utilities' debts by giving them a share of a record rate increase approved last week and by continuing to negotiate the state's purchase of their transmission lines.
PG&E Corp., however, said those negotiations were "going nowhere." Davis spokesman Steve Maviglio said the bankruptcy filing was a complete surprise. He said aides were meeting with the attorney general's office and bankruptcy lawyers to discuss the implications. Consumer activists were quick to pounce on the news as more evidence that the utility is not getting enough help from its parent company, which has profited during California's energy crisis. "The parent company has $30 billion, much of which it has siphoned out of the utility coffers. It would have bailed the utility out," said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. PG&E Corp. said its subsidiary was forced into bankruptcy because of "unreimbursed energy costs, which are now increasing by more than $300 million per month," state regulatory decisions that are hurting the company and "the now unmistakable fact that negotiations with Gov. Gray Davis and his representatives are going nowhere."
Utility Stocks Slump
Southern California Edison, the state's second-largest utility, was not affected by the filing. Officials at parent Edison International were meeting Friday to discuss the situation. Edison International's stock was down $3.63, or 29 percent, to $9.01 in trading on the New York Stock Exchange. The stock of Sempra Energy, the parent company of San Diego Gas & Electric that serves 3 million customers in the San Diego area, was down $2.17, or 9 percent, to $21.98 per share. The three utilities say they have lost more than $14 billion since June because of soaring wholesale costs. SoCal Edison and Pacific Gas & Electric are barred under the state's deregulation law from raising rates to recover the costs and are having trouble buying power and natural gas because of poor credit.
Davis Backs Rate Increases
In his five-minute televised speech Thursday evening, Davis said rate increases are needed to help pay for power purchased by the state on behalf of the utilities. The purchases have cost taxpayers $4.7 billion since January. Davis said his tiered rate plan would mean no increase for most residents and an average increase of 26.5 percent for the rest. The Public Utilities Commission has already approved rate increases of up to 46 percent for customers of SoCal Edison and Pacific Gas & Electric. The power crisis led to rolling blackouts in January and earlier this month as electricity supplies dwindled to nearly nothing. On Thursday, state power grid managers said California will see more than a month of rolling blackouts for as many as 5 million people at a time if residents use as much power this summer as last summer. The crisis is blamed a number of factors, including high demand, high wholesale costs and a tight supply worsened by scarce hydroelectric power in the Northwest and maintenance of aging California power plants. The governor has signed contracts and agreements in principle to secure the state's long-term power needs, committing $53 billion that eventually must be paid back by taxpayers and utility customers.