California regulators will reconsider whether utilities can pass on electric losses

By MICHAEL LIEDTKE The Associated Press 10/17/00 9:12 PM

SAN FRANCISCO (AP) -- Calfornia regulators agreed Tuesday to reconsider whether utilities can charge customers for the billions of dollars in losses that piled up during a summer of soaring electricity prices.

Responding to an emergency petition by Pacific Gas and Electric Co. and Southern California Edison Co., the California Public Utilities Commission left open the possibility of reversing five prior decisions that blocked the companies from recovering the losses from customers.

Regulators turned down the utilities' request for an immediate stay of those past decisions, but the mere chance of rate relief may be enough to allow PG&E and SoCal Edison to dodge a possible bullet in the stock market.

Had the PUC reaffirmed its previous decision, the utilities probably would have had to write off several billion dollars in losses on their financial statements in the third or fourth quarter.

Disclosures about the likely losses almost certainly would have been made in a third-quarter Securities and Exchange Commission filing due by mid-November.

If the utilities were forced to make grim financial disclosures, "it would be very negative for the stocks," said Carol Coale, a utility industry analyst for Prudential Securities in Houston. "Right now, the fate of these utilities is in the hands of their regulators and their bankers."

Coale estimated PG&E faced the prospect of writing off as much as $3 billion in losses this year.

PG&E had little to say about Tuesday's decision.

"This is a very serious issue and we want to thoroughly review the material before commenting further," said PG&E spokesman Ron Low.

Consumer activists blasted the PUC's decision.

"This is a sop to the financial markets," said Nettie Hoge, executive director for TURN, a San Francisco watchdog group. "By reopening this case, the PUC is unleashing a tsunami of lawyers that is going to come in and argue why we should have to pay for these losses."

TURN plans to release a report Wednesday contending that California utilities have generated an additional $18 billion in revenue from deregulation, more than enough to offset recent losses.

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, accused the PUC and Gov. Gray Davis' administration of "caving in to the utilities. These companies just want to be able to go to Wall Street and say they still have a chance of getting this money back."

PUC President Loretta Lynch did not return a call seeking comment.

Rosenfield said his group will ask the SEC to investigate whether accounting laws require the utilities to write off their losses immediately.

San Francisco-based PG&E says it has lost $2.2 billion this year from a freeze on electric rates imposed as part of industry deregulation. Rosemead-based SoCal Edison places its losses from the freeze at about $2 billion.

The utilities are losing money because they must buy the power in the wholesale market, where prices have unexpectedly tripled and, at times, quadrupled over the past year. The freeze on their customer rates isn't scheduled to expire until March 2002.

To insulate themselves, the utilities this week filed a petition with the Federal Energy Regulatory Commission seeking to cap wholesale prices for electricity at $100-per-megawatt hour. The current cap in California is $250-per-megawatt hour.

The chasm between the utilities' wholesale costs and retail rates is hurting the companies' standing on Wall Street.

In a filing with the PUC last week, SoCal Edison noted that "the investment community is expressing growing concern" about the utility's ability to recover its losses. SoCal Edison urged regulators to "take action which will, at a minimum, send the right signal to the financial markets."

http://www.nj.com/newsflash/index.ssf?/cgi-free/getstory_ssf.cgi?f0370_BC_UtilityTurmoil&&news&newsflash-financial

-- Martin Thompson (mthom1927@aol.com), October 18, 2000