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Thursday, December 21, 2000
Copyright © Las Vegas Review-Journal

Standard & Poor's threatens to cut bond ratings for California utilities if rates aren't raised

Energy Secretary Bill Richardson urges Western governors to work together to solve problems

DENVER -- Energy Secretary Bill Richardson on Wednesday extended for a week an order requiring Western generators to sell electricity to power-strapped California.

Richardson, who supports a regionwide cap on wholesale electricity prices, also urged Western governors to work together to solve problems that have created power shortages in California and tripled prices for some consumers.

Richardson met with five governors at an emergency meeting of the Western Governors Association.

The five, some of whom were skeptical of the price cap, called for several specific steps to help alleviate the problems, starting with major conservation efforts in California and other Western states.

In addition, they asked President-elect Bush to create a team to work with the governors, while he is forming his Cabinet.

They also asked the Federal Energy Regulatory Commission to investigate the cause of California's skyrocketing electricity prices, who benefits from the prices and whether any generating capacity has been withheld.

FERC Chairman Jim Hoecker said he anticipated that information could be given to the governors within several weeks.

"We have audit teams looking at this market as we speak," he said.

Hoecker also speculated that a regional price cap wouldn't be much help.

"Nationally, we have not improved our infrastructure enough to meet demands," Hoecker said.

The governors at the meeting represented Colorado, Utah, Oregon, Washington and Wyoming. California Gov. Gray Davis did not attend, staying home to address the crisis.

Also Wednesday, Standard & Poor's warned that it will cut off the financial lifelines of the state's two largest utilities unless electricity rate increases are approved by the end of the week.

S&P, one of Wall Street's major credit rating firms, told investors that Pacific Gas and Electric and Southern California Edison will need substantial customer rate increases to avoid going bankrupt early next year.

The rating agency is hoping a solution will emerge either from a California Public Utilities Commission meeting scheduled for today or from negotiations involving Gov. Gray Davis, U.S. Energy Secretary Bill Richardson, federal regulators and governors from other Western states.

"Absent meaningful and sustainable actions by the decision makers in the next 24 to 48 hours," the firm will slash the utilities' credit ratings to below investment grade, said S&P analyst Richard Cortright.

A drastic downgrade would harm the financial reputations of PG&E and SoCal Edison by putting them on the same tier as junk bonds and making it difficult, if not impossible, to raise money from investors.

The utilities currently have strong credit ratings in the "A" to "AA" range.

Last week, Richardson issued an emergency order forcing 75 Western generators to supply electricity to California. The producers had been reluctant to supply power because they were concerned about receiving payment from California's two largest utilities, both of which are struggling financially. The order expired at midnight Wednesday, when the extension went into effect.

FERC approved a flexible rate cap of $150 per megawatt hour that allows suppliers to charge more if they can prove a higher price is warranted. Davis and California's major power utilities ridiculed the flexible cap as ineffective.

Davis wants a firm regional price cap of $100 per megawatt hour, a concept that appears to be winning favor among some Western states worried that California's energy problems could spread.