Friday April 6, 2:02 pm Eastern Time

Calif.'s Davis "surprised" by PG&E bankruptcy move

(UPDATE: adds background, PG&E comment)

SACRAMENTO, Calif., April 6 (Reuters) - California Gov. Gray Davis was ``surprised'' by Friday's bankruptcy filing by Pacific Gas & Electric Co., a bombshell announcement that threatens to explode his strategy for resolving California's energy crisis.

Davis spokesman Steve Maviglio said Pacific Gas & Electric's bankruptcy move came just hours after the latest meeting between administration and company officials seeking to agree on ways to help the cash-strapped utility back to financial health.

``We were surprised. We were talking to them last night,'' Maviglio said. ``We had a four hour meeting with them the day before ... they were on-going, continued, frank discussions. We agreed to meet again.''

The utility, which serves 13 million Californians, says it has accumulated more than $8.9 billion of back debts because California's 1996 power deregulation law has prevented it from passing along skyrocketing wholesale costs to its customers.

In announcing its bankruptcy filing, the utility unit of PG&E Corp. (NYSE:PCG - news). said it was getting nowhere with bailout talks with Davis that have centered on a proposal that it sell its massive power transmission grid to the state.

``Despite Pacific Gas & Electric's best efforts to work with the State of California to reach a consensual, responsible, fair and comprehensive solution to California's energy crisis, no agreement has been reached with the Governor and the Governor's representatives have dramatically slowed the pace and the progress of discussions over the past month,'' the statement said.

Industry analysts say the bail-out talks have foundered on a difference over the proposed price of the grid, which could be anywhere from $3 billion to $9 billion.

In an unprecedented speech to the state Thursday, Davis repeated his offer to help the utilities, but made it conditional on their agreement to sell their transmission network.

A Republican lawmaker in Sacramento who asked not to be named said that conditional offer may have been what pushed Pacific Gas & Electric to opt for the bankruptcy filing.

``They did this because in his speech last night he made the rate increase contingent on the sale of the transmission lines,'' the lawmaker said, adding that the state, which has been spending upward of $50 million per day to buy power on behalf of the utilities, would now find itself with a lot of competition as it seeks compensation.

``This is like opening a box of butterflies. We just get in the back of the line with the rest of the creditors,'' he said.

http://biz.yahoo.com/rf/010406/n06485976.html

-- Cave Man (caves@are.us), April 06, 2001

Answers

PG&E bonds fall on bankruptcy news By Julie Rannazzisi & Rachel Koning, CBS.MarketWatch.com Last Update: 1:51 PM ET Apr 6, 2001

NEW YORK (CBS.MW) - PG&E's bonds, already trading at junk levels, fell further on Friday after the California utility filed for voluntary Chapter 11 bankruptcy protection.

A 7 3/8 percent security due in 2005 was recently changing hands at 65 cents on the dollar, down from 75 cents on the dollar ahead of the announcement, said Tony Crescenzi, a bond market analyst with Miller, Tabak & Co.

The company had piled up about $9 billion in debts during the state's electricity crisis, largely because it couldn't pass along higher wholesale costs to consumers because of 1996 utility deregulation law.

Shares of PG&E Corp., (PCG: news, msgs, alerts) parent of Pacific Gas & Electric Co. were halted prior to the announcement. The stock fell 2 cents to $11.36 before the halt.

John Atkins of IDEAglobal said that bondholders were assessing the situation and that it would take time to see where the bonds should be valued following the news.

"The issue here is whether there is system-wide risk. They have liabilities that could spread out to the state and ripple through the economy," said Crescenzi.

But he said the situation can't be compared to Long-Term Capital Management, for example, because PG&E is not leveraged as was the hedge fund that spawned concern for global economic crisis when it failed in 1998.

"The exposure is probably in the few billion, which is insignificant when compared to the whole economy," he said. "The worry is what the impact will be on psychology, on PG&E's creditors and stockholdesr who are out of money on their investment and in general, on the California economy."

Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York. Rachel Koning is a reporter for CBS.MarketWatch.com.

http://www2.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid =yhoo&dist=yhoo&guid=%7B4E485099%2D8D80%2D43CC%2DABE9%2D3F4699DBED67%7 D

-- Cave Man (caves@are.us), April 06, 2001.

Gray Davis is toast.

-- libs are idiots (moreinterpretation@ugly.com), April 06, 2001.

"Calif.'s Davis "surprised" by PG&E bankruptcy move"

BULLSHIT! He had fair warning that PG&E was going to file bankruptcy. He came out with a measley 5 minute blathering speech and TOOK NO QUESTIONS! He's f*cked! Maybe someone will get the ball rolling and start a recall! He's a worthless piece of dog sh*t!

-- pissed (I'mpissed@pissondavis.com), April 07, 2001.