Subject: Fwd: California News - Friday Evening, March 16, 2001
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Subject: California News - Friday Evening, March 16, 2001
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Friday March 16, 9:41 pm Eastern Time

PG&E Corp. Gets $1.2B Tax Refund

SAN FRANCISCO (AP) -- PG&E Corp. disclosed Friday that it has received a $1.2 
billion tax refund and will hand over almost all the money to its nearly 
bankrupt utility.

The San Francisco-based company said it will give $1.1 billion to Pacific Gas 
and Electric Co., the utility whose losses last year triggered the refund. By 
turning over the refund to its subsidiary, PG&E is following the suggestion 
of a state-ordered audit released in January

The holding company hasn't always been so generous with its utility. PG&E 
pocketed a $278 million overpayment that the utility made on its 1999 taxes, 
according to the audit by the Barrington-Wellesley Group Inc.

With the refund, Pacific Gas and Electric's cash reserves rose to $2.7 
billion, but the utility still doesn't have enough money to pay hundreds of 
increasingly testy creditors.

The utility has been on the financial ropes for months because wholesale 
electricity prices have been far higher than retail prices since last May. As 
of Jan. 31, Pacific Gas and Electric said it had run up an $8.3 billion debt 
buying electricity.

Pacific Gas and Electric plans to use some of the tax refund to maintain the 
operations that enable the utility to continue delivering power to its 
customers.
***********************************************
Friday March 16, 7:33 pm Eastern Time

Giant Calif. Utility Gets Cash Lifeline
By Andrew Quinn

SAN FRANCISCO (Reuters) - California's largest utility, shoved to the brink 
of bankruptcy by the state's power crisis, received a $1.1 billion lifeline 
on Friday as its parent company turned over a massive federal tax refund to 
keep operations going.

Pacific Gas & Electric's financial boost from parent PG&E Corp (NYSE:PCG - 
news) will provide the giant utility with desperately needed funds to keep 
serving its 13 million customers as the state's political leaders struggle 
over a bail-out package.

In a glimmer of optimism, corporate executives said on Friday that a bail-out 
deal might be edging closer.

But the cash infusion and bail-out progress came amid growing concern over 
the financial health of California's two major utilities amid a crisis fueled 
by the disastrous 1996 state electricity deregulation law that forced the 
utilities to buy power on the spot market but refused them the right to pass 
the higher prices on to consumers.

On Friday, Pacific Gas & Electric said it would make good on only a segment 
of debt payments due on April 2 -- adding to the mountain of unpaid paper the 
utility has stacked up. Southern California Edison, the state's number two 
utility, said it would fight any effort to push it into involuntary 
bankruptcy.

In Washington, meanwhile, federal regulators ordered six generators to either 
justify why their prices were so high or refund $55 million to California 
utilities for overpriced wholesale power sales in February.

The Federal Energy Regulatory Commission (FERC) move followed a similar $69 
million refund order against the same six generators last week for their 
January sales, boosting California critics who have alleged that 
``out-of-state profiteers'' have exacerbated the state's critical energy 
shortages.

The crisis led power managers to impose rolling blackouts across parts of the 
state twice in January, and federal Energy Secretary Spencer Abraham said on 
Thursday he believed more blackouts appeared ``inevitable'' this summer as 
air conditioning pushes power demand sharply higher in the state.

PG&E VOICES OPTIMISM

Both Pacific Gas & Electric and its No. 2 rival, Edison International 
(NYSE:EIX - news) unit Southern California Edison, have been fighting a 
losing financial battle because the 1996 power deregulation law blocks them 
from passing along soaring wholesale energy costs to consumers.

As a result, the utilities are well over $13 billion in debt and say they 
simply do not have the money to continue purchasing power for their customers.

California Gov. Gray Davis, facing one of the worst economic crises ever to 
hit the nation's richest and most populous state, has crafted a rescue 
package which involves both emergency state purchases of power and an 
elaborate bail-out for the utilities.

But that bail-out, hinging on the state buying the utilities' vast network of 
transmission lines, has run into trouble as negotiations bog down over the 
price of the deal.

On Friday, however, PG&E Corp. Chief Financial Officer Peter Darbee told a 
teleconference with investors that the talks were on track.

``We are making pretty good progress and have moved to the point where a 
greater level of detail'' is being negotiated with Davis, he said, adding 
that he was ``cautiously optimistic'' a deal could be reached.

Darbee also said the talks had taken on ``a quickening pace of activity'' as 
pressure builds to find a solution to the state's power emergency.

The income tax refund raised the utility's cash on hand to $2.7 billion, but 
officials said that, once all of the utility's debts were tallied, it would 
still be $1.6 billion in the red.

PG&E said on Friday in a filing with the Securities and Exchange Commission 
it would make quarterly interest payments on its commercial paper due April 
2, but would deferring a quarterly payment on preferred securities.

CONTINUED CONCERN AT SOCAL EDISON

Concern this week focused on Southern California Edison, where a number of 
unsecured creditors -- mostly small power generators who rely heavily on 
income from the utility -- began considering plans to push the utility into 
involuntary bankruptcy.

Officials at the utility's parent company said on Friday they believed 
Southern California Edison was in a strong position to fight involuntary 
bankruptcy, which they said would cause the state's power crisis to spin out 
of control.

``We believe we have solid grounds on which to oppose,'' said Barbara 
Mathews, an assistant general counsel for SoCal Edison, in an investor 
conference call. ``We believe that bankruptcy court intervention isn't 
necessary or in anyone's best interest right now.''

Edison International Chief Financial Officer Ted Craver said the solution to 
the utilities' woes ``is very much tied up in the political process'' -- but 
said it should come soon.

``People's patience is getting short. We really need a solution and we need 
it soon,'' he said.

Wall Street, which has been watching California's lurching efforts to resolve 
its energy crisis, clearly agrees.

Edison International shares closed on the New York Stock Exchange down $1.35, 
or 9.9 percent, at $12.24, less than half their 52-week high of $26.5625. 
PG&E shares closed on the Big Board down $1.50, or 11.6 percent, at $11.42, 
compared to their 52-week high of $31.8125.
******************************************
Friday March 16, 9:40 pm Eastern Time

Judge delays ruling on Calif. emergency power sales

SACRAMENTO, Calif., March 16 (Reuters) - A federal judge on Friday delayed 
until next week his decision on whether to extend an order requiring four 
independent energy companies to sell electricity to the California power grid 
operator.

U.S. District Court Judge Frank Damrell put the case on hold until March 20 
following a lengthy hearing Friday in which lawyers for Reliant Energy Inc. 
(NYSE:REI - news), Williams Cos. Inc. (NYSE:WMB - news), AES Corp. (NYSE:AES 
- news) and Dynegy Inc. (NYSE:DYN - news) argued their companies should be 
released from an order to sell power to the California Independent System 
Operator (ISO), citing fears of not being paid.

Utility industry and government officials said Damrell was widely expected to 
extend the order, a move that would keep in place a Feb. 6 restraining order 
requiring Reliant to continue emergency sales to the ISO.

The order was later expanded to include the other suppliers on the strength 
of state lawyers' arguments that the power was needed to avoid blackouts.

Back in January, when a severe lack of electricity triggered two days of 
rolling blackouts, the ISO was thrust into the position of securing emergency 
power on a daily basis to close the gap between surging demand and scant 
supplies.

The four energy merchants have repeatedly argued before Judge Damrell that 
deals with the ISO poses a major credit risk.

The ISO's credit rating was badly damaged when two of its biggest customers, 
the utility subsidiaries of PG&E Corp.

(NYSE:PCG - news) and Edison International (NYSE:EIX - news), ran out of cash 
earlier this year buying electricity in the region's volatile spot market.

Facing a combined $13 billion debt, the two utilities now depend on the 
long-term contracts negotiated on their behalf by the state's Department of 
Water Resources and spot market purchases by the ISO to supplement power 
generated at their own plants.

The Department of Water Resources does not pose the same thorny problem for 
the energy merchants as the ISO since it draws on the state's still solid 
credit rating.

Meanwhile, the ISO, which oversees about 75 percent of the California 
transmission grid, is currently buying up to 4,000 megawatts of power a day 
-- enough to supply four million homes -- to make up for what has not already 
been secured through contracts.

At today's hearing, lawyers for AES, Williams and Dynegy told the court the 
three companies had volunteered to extend their sales to the ISO prior to 
Friday's hearing.

Houston-based Reliant said it was willing to abide by an extended interim 
agreement with the ISO through May.
**************************************
Friday March 16, 6:42 pm Eastern Time

SoCal Edison says ready to fight any forced bankruptcy

By Jonathan Stempel

NEW YORK, March 16 (Reuters) - Southern California Edison, one of the two 
utilities struggling to survive California's power crisis, said on Friday it 
is in a strong position to fight off a push by some of its creditors to force 
it into involuntary bankruptcy.

The utility's parent, Edison International (NYSE:EIX - news), made its 
statements late on Friday, a day its shares fell almost 10 percent.

The decline follows a federal court ruling this week that Caithness Energy, 
one of SoCal Edison's unsecured power providers, could place a lien on the 
utility's Mojave power plant.

It also came after reports surfaced that Coram Energy, another provider, is 
circulating a petition among five other providers to push SoCal Edison into 
bankruptcy involuntarily, so that it can get paid for power it has already 
provided.

The push comes at a time California legislature is reportedly stalled on 
talks to allow SoCal Edison, the state's No. 2 utility, and No. 1 utility 
Pacific Gas & Electric Co. to recoup more than $13.7 billion of wholesale 
power costs they cannot collect because of a rate freeze imposed under 
California's failed 1996 utility deregulation.

The cash crunch has already triggered periodic rolling blackouts in the 
nation's most populous state.

``We believe we have solid grounds on which to oppose'' an involuntary 
bankruptcy filing, said Barbara Mathews, an assistant general counsel for 
SoCal Edison, in an investor conference call conducted by Rosemead, 
Calif.-based Edison International. ``We believe that bankruptcy court 
intervention isn't necessary or in anyone's best interest right now.''

A bankruptcy filing would cause California's power crisis to spin out of 
control, said Ted Craver, Edison International's chief financial officer, in 
the call.

``The solution is very much tied up in the political process,'' he said. 
``People's patience is getting short. We really need a solution and we need 
it soon.''

SoCal Edison, which serves 11 million Californians, and Pacific G&E, which 
serves 13 million, and their parents, have already missed a variety of 
payments or are otherwise in default of various agreements.

POWER GENERATORS ORDERED TO REFUND $55 MILLION

Pacific G&E said on Friday in a filing with the U.S. Securities and Exchange 
Commission it intends on April 2 to make quarterly interest payments on its 
commercial paper, but is deferring a quarterly payment on preferred 
securities. PG&E said in another filing it had transferred $1.1 billion of 
its $1.2 billion tax refund to the utility.

Meanwhile, the Federal Energy Regulatory Commission on Friday ordered six 
power generators to refund $55 million to the utilities for overpriced 
February wholesale power sales.

Edison International shares closed on the New York Stock Exchange down $1.35, 
or 9.9 percent, at $12.24. PG&E shares closed on the Big Board down $1.50, or 
11.6 percent, at $11.42.

In the conference call, Craver also questioned an article from Dow Jones News 
Service suggesting that negotiations with California legislators are going 
nowhere.

The article quoted an unnamed senior SoCal Edison executive as saying 
negotiations by California with its three investor-owned utilities to buy 
their power lines will ``never see the light of day.''

The executive also reportedly said SoCal Edison, which agreed in principle 
last month to sell its part of California's power grid to the state for $2.76 
billion, is ``nowhere closer to a final agreement.''

The pace of negotiations has ``certainly slowed down,'' Craver said, but 
added: ``I don't think that a number of those statements there accurately 
reflect what's going on. We are in active discussions with the Governor's 
office. We're scratching our heads to determine who this mysterious person is 
who made these comments.''

Craver said SoCal Edison, meanwhile, decided on Friday to make an $8 million 
payment on first mortgage bonds it had missed 60 days ago, in order to avoid 
having to repay $225 million of principal immediately.

Separately, he said Edison International and its utility unit remain in 
discussions with bankers who had agreed to ``forbear,'' or not act upon, 
defaults on three credit lines through Wednesday. ``Our bank forbearance 
agreement expired two days ago,'' said Craver. ``We have initiated 
discussions with the banks earlier this week. Those discussions continue.''