(Gotta wonder - who's holding stocks in utilties and in banks? This is hurting them even more than its hurting consumers, perhaps.)
Friday April 6 3:23 PM ET
Calif.'s Davis 'Surprised' by PG&E Bankruptcy Move
By Jonathan Stempel
NEW YORK (Reuters) - Pacific Gas & Electric Co., California's largest utility, said on Friday it filed for voluntary bankruptcy protection, citing the failure of the political process to resolve the state's power crisis.
The Chapter 11 filing with the U.S. Bankruptcy Court for the Northern District of California by Pacific G&E, which owes $9 billion for power costs, is one of the largest ever by a U.S. utility.
It was disclosed in mirror filings by the utility and its parent, San Francisco-based PG&E Corp., with the Securities and Exchange Commission. The parent did not file for court protection.
Trading was halted in PG&E shares before the filing. The shares last traded on Friday at $11.36, down 2 cents. They had fallen 46 percent in the last year. Its bonds fell about 2 cents on the dollar.
The filing for bankruptcy reorganization was disclosed fewer than 18 hours after California Gov. Gray Davis, in a speech televised statewide, proposed his own plan to help rescue Pacific G&E and the state's second-largest investor-owned utility, Southern California Edison.
``What happened was that last night we saw very disappointing comments from Gov. Davis,'' said Dan Scotto, senior utilities analyst for BNP Paribas. ``Last night's speech was pregnant with anticipation, but fell short of investor expectations.''
Pacific G&E, which serves 13 million Californians, had piled up about $9 billion in debts because its wholesale prices have soared, yet a rate freeze imposed under California's 1996 utility
deregulation capped retail prices. The state's power shortage has resulted this year in four rolling blackouts so far.
``The regulatory and political processes have failed us, and now we are turning to the court,'' said Robert Glynn, chairman of PG&E and Pacific G&E, in a press statement.
Governor Davis ``Surprised''
A spokesman for Davis said the governor was ``surprised'' by Pacific G&E's bankruptcy filing.
``We were talking to them last night,'' said spokesman Steve Maviglio. ``We had a four-hour meeting with them the day before they were ongoing, continued, frank discussions. We agreed to meet again.''
Trading was halted in shares of Rosemead, Calif.-based Edison International, the parent of SoCal Edison, after the filing. By the middle of Friday afternoon, they traded at $8.95, down $3.69, or 29 percent on the day and down 47 percent in the last year.
In a press statement, John Bryson, Edison's chairman, called Pacific G&E's filing ``a sad day for California.
``We at Southern California Edison continue to believe that working out a comprehensive solution to our current crisis in a preferable course to take,'' he said. ``PG&E's decision today does not change our position.''
Analysts have said SoCal Edison, which has more than $5.4 billion in uncollected costs, is financially stronger than Pacific G&E. It has not sought court protection,
The utilities have already defaulted on a wide array of bonds and bank loans. Other utilities to have defaulted include Public Service Co. of New Hampshire, which also sought bankruptcy protection, and the Washington Public Power Supply System -- often referred to as ``Whoops.''
``Undermined''
Pacific G&E said in its filing that it ``retains control of its assets and is authorized to operate its business as a debtor in possession while being subject to the jurisdiction of the Bankruptcy Court.''
Glynn said Pacific G&E filed because California will not cover the utility for its unrecovered costs, which it said are now increasing by more than $300 million a month. Bankruptcy, he said, is the ``fairest'' venue for shareholders.
Pacific G&E also attacked decisions by the California Public Utilities Commission that it said ``undermined'' the utility's ability to return to financial viability and recover its uncollected costs, as well as a ``lack of progress'' with the state to recover prior wholesale power costs.
The PUC, which sets rates, last week awarded Pacific G&E and SoCal Edison a roughly 40 percent rate hike. This initially cheered investors, but it soon became apparent the hike would not address the utilities' prior power costs.
California, meanwhile, has been planning to sell up to $14 billion of bonds to help fund future power purchases.
With the matter now in the bankruptcy court, ``you've got the question of 'What do we do to restore some sound footing here?''' said Mitchell Stapley, a portfolio manager for Lyon Street Asset Management in Grand Rapids, Mich.
Scotto said ``the one thing they can count on is that the whole process will be under the auspices of one individual, mainly the federal bankruptcy judge. This may be the best for everybody -- this places everyone on the same playing field.''
Davis on Thursday had proposed an average 26.5 percent rate increase for fewer than half of the customers of Pacific G&E, SoCal Edison and San Diego Gas & Electric Co., the state's third-largest investor-owned utility, a unit of San Diego-based Sempra Energy Inc..
The proposal had several conditions, including PG&E selling off its share of the state's power grid, which analysts said the company was resistant to doing. Edison in February reached a preliminary agreement with the state to sell its share.
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