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