California Power Woes Deepen

Jan. 6, 2001 -- Southern California Edison, one the state’s two major utility companies struggling to avoid bankruptcy and keep the lights on across the state, has announced 1,450 layoffs, prompting President Clinton to call a high-level White House meeting on the issue next week.

Company officials estimate the move will save an estimated $465 million, money the company desperately needs, according to its Vice President Tom Higgins.

“We have very big bills that are coming due this month,” said Higgins, “and you know we need to be able to satisfy those obligations or we’re going to have to see a situation where California will basically be experiencing these blackouts.”

However, a union spokesman for the International Brotherhood of Electrical Workers said the layoffs only prove energy deregulation isn’t working and could have been avoided if people had “done their homework.”

Losing Money Daily

Both Edison and Pacific Gas and Electric Company, the state’s two largest utility companies, have pleaded for relief, having lost more than $9 billion since June to soaring wholesale prices and a state-imposed rate freeze that prevented them from passing costs on to consumers. The deficit, in turn, has affected the companies’ ability to buy power on credit and avert blackouts.

“We’re basically borrowing, depending on the day, anywhere from 24 to 30 million dollars or going into debt in order to procure electricity,” said Higgins. “We can’t keep doing that clearly.”

Southern California Edison, a unit of Edison International has around 11 million customers while Pacific Gas and Electric, a subsidiary of PG&E Corp, has 13 million.

Thursday, the state’s Public Utilities Commission dealt a blow to the companies by voting to raise electric rates between seven and 15 percent—half of what the companies requested. The rate hike, effective immediately, would raise the average monthly residential bill of $54 by about $5.

Apparently, Wall Street also hadn’t expected such a modest rate hike to salvage the faltering utilities and responded by downgrading their parent companies’ credit ratings. Then, stock prices plummeted.

Friday, the U.S. Court of Appeals in Washington rejected a bid by SoCal Edison to order the Federal Energy Regulatory Commission to cap wholesale electricity prices. FERC had argued that a cap would not solve the crisis.

Shortly after that, SoCal Edison announced the layoffs. The company eliminated 400 jobs last month. The 1,850 layoffs amount to 13.6 percent of its work force.

White House Steps In

Friday’s layoff announcement came as Energy Secretary Bill Richardson granted a reprieve to SoCal Edison and Pacific Gas and Electric Co. and extended an order requiring suppliers to sell California electricity to avoid blackouts.

Richardson’s order was scheduled to expire Friday, but the extension takes it through next Thursday. To keep it in place beyond that the state must implement measures to reduce peak demand 5 percent by Jan. 15.

Meanwhile, President Clinton Treasury Secretary Lawrence Summers, National Economic Council director Gene Sperling and Richardson were among those expected to attend the White House meeting on Tuesday. It was unclear if Gov. Gray Davis, expected to discuss the issue in his State of the State Address on Monday, would attend, said spokesman Steve Maviglio.

“The idea there is to try to create some sort of framework that could help to alleviate the supply crunch that California is experiencing now in energy,” said White House spokesman JakeSiewert.

Bankruptcy and Blackouts

Wholesale power prices in California started soaring in late spring as supplies struggled to keep pace with surging demand linked to a buoyant economy.

California’s acute power problems are rooted in the fact that no significant new plants were built during the last decade, partly because of uncertainty over deregulation of the state’s electricity industry.

The power shortage almost triggered rolling blackouts across the state last year, but each time they were narrowly averted.

Some fear bankruptcy would pose a serious new blackout threat, but many bankruptcy lawyers view that as unlikely.

“I think [the threat] is very slim. Politicians will step up and provide the credit enhancements necessary [to avoid blackouts],” said Kenneth Klee, an acting law professor at the University of California in LosAngeles.

Josefina McEvoy, bankruptcy partner at the Los Angeles law firmof Markowitz & Fernandez, noted that bankruptcy judges would be concerned with the public interest and the fact that blackouts could drive up crime and result in economic losses for some companies.

“I would be inclined to say a bankruptcy judge would enjoin the companies from interrupting service to customers,” she said. “The judge could also compel generators to continue to provide power to the utilities.”

Customers, however, would feel the pain of higher bills.

“It is safe to say going forward the consumer is going to haveto pay the cost of power,” said Klee, who is also a partner with Los Angeles lawfirm Klee, Touchin, Bogdanoff and Stern LLP.

“A bankruptcy judge would have the power and jurisdictionto approve different rates pursuant to a plan of reorganizationto provide companies with sufficient cash flow to effect aturnaround,” added McEvoy.

ABCNEWS Radio, the Associated Press and Reuters contributed to this report.