Calif. Utility Giant Files for Bankruptcy

S A N  F R A N C I S C O, April 6, 2001 -- Pacific Gas and Electric, California'slargest utility, filed for Chapter 11 bankruptcy protection todaydespite months of efforts by state officials to bail out thecash-starved company.

The utility's 13 million customers probably will be among theleast affected, since bankruptcy proceedings allow companies tocontinue operating while trying to dig out of their financial hole.

But lenders, bondholders and power generators may have to writeoff billions advanced to the utility as losses. And the company'sfinancial reputation could be damaged for years, making it moredifficult to raise money to upgrade transmission lines and plants.

Turning to the Courts for Help

"The regulatory and political processes have failed us, and nowwe are turning to the court," company Chairman Robert D. Glynn Jr.said. "We expect the court will provide the venue needed to reacha solution, which thus far the state and the state's regulatorshave been unable to achieve." The company, a subsidiary of PG&E Corp., had run up an $8.9billion deficit buying electricity as of Feb. 28. Like otherCalifornia utilities, it has been pinched by skyrocketing wholesalepower costs and the state's 1996 deregulation law barring rateincreases. As of March 29, the utility had $2.6 billion in cash andoutstanding bills of $4.4 billion. Shares of PG&E Corp. were haltedon the New York Stock Exchange, where they last traded at $11.36,down 2 cents. The company provides natural gas and electric service acrossNorthern and Central California. It has 21,500 employees.

Negotions With State 'Going Nowhere'

The bankruptcy filing came one day after Gov. Gray Davis, in astatewide address, proposed relieving utilities' debts by givingthem a share of a record rate increase approved last week and bycontinuing to negotiate the state's purchase of their transmissionlines.

PG&E Corp., however, said those negotiations were "goingnowhere." Davis spokesman Steve Maviglio said the bankruptcy filing was acomplete surprise. He said aides were meeting with the attorneygeneral's office and bankruptcy lawyers to discuss theimplications. Consumer activists were quick to pounce on the news as moreevidence that the utility is not getting enough help from itsparent company, which has profited during California's energycrisis. "The parent company has $30 billion, much of which it hassiphoned out of the utility coffers. It would have bailed theutility out," said Harvey Rosenfield of the Foundation forTaxpayer and Consumer Rights. PG&E Corp. said its subsidiary was forced into bankruptcybecause of "unreimbursed energy costs, which are now increasing bymore than $300 million per month," state regulatory decisions thatare hurting the company and "the now unmistakable fact thatnegotiations with Gov. Gray Davis and his representatives are goingnowhere."

Utility Stocks Slump

Southern California Edison, the state's second-largest utility,was not affected by the filing. Officials at parent EdisonInternational 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 billionsince June because of soaring wholesale costs. SoCal Edison andPacific Gas & Electric are barred under the state's deregulationlaw from raising rates to recover the costs and are having troublebuying power and natural gas because of poor credit.

Davis Backs Rate Increases

In his five-minute televised speech Thursday evening, Davis saidrate increases are needed to help pay for power purchased by thestate 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 mostresidents and an average increase of 26.5 percent for the rest. ThePublic Utilities Commission has already approved rate increases ofup to 46 percent for customers of SoCal Edison and Pacific Gas &Electric. The power crisis led to rolling blackouts in January and earlierthis month as electricity supplies dwindled to nearly nothing. On Thursday, state power grid managers said California will seemore than a month of rolling blackouts for as many as 5 millionpeople at a time if residents use as much power this summer as lastsummer. The crisis is blamed a number of factors, including high demand,high wholesale costs and a tight supply worsened by scarcehydroelectric power in the Northwest and maintenance of agingCalifornia power plants. The governor has signed contracts and agreements in principle tosecure the state's long-term power needs, committing $53 billionthat eventually must be paid back by taxpayers and utilitycustomers.