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05 Feb 2001
MOODY'S COMMENTS ON PASSAGE OF ASSEMBY BILL #1 FOR THE CALIFORNIA INVESTOR OWNED UTILITIES
New York, February 05, 2001 -- Moody's Investors Service views the passage of Assembly Bill No.1 (AB1) as a step towards providing less volatile wholesale power prices in the Western United States and towards transferring the future procurement obligation from the utilities. However, passage of AB1 does not address recovery of the past undercollected amounts associated with power procurement for both Pacific Gas and Electric Company and Southern California Edison Company, which Moody's believes is essential for strengthening both utilities' credit quality.
Under AB1, the Department of Water Resources (DWR) will have the authority to enter into long-term contracts with power producers. All power acquired by DWR, whether secured through long-term contracts or spot purchases, shall be sold to all retail end use customers being served by electrical corporations, including Pacific Gas and Electric Company, Southern California Edison Company and San Diego Gas and Electric Company. Payments made by retail customers for the power secured by DWR will be paid to DWR. AB1 also authorizes DWR to issue revenue bonds which will be used to repay the General Fund of the State of California for monies that have been spent to purchase electricity in the wholesale market and to finance spot and contracted electric purchases made in the future. Revenues collected from ratepayers will be used for debt service on these securities. The bill has specific language which provides rate protection to residential customers whose usage is not more than 130% of their existing baseline levels.
Representatives from DWR have been negotiating with power producers for intermediate term and long-term contracts for electric supply, with the hope of signing contracts with these and other producers for immediate delivery of power. To the extent that the DWR is successful in securing sufficient sources of contracted energy, wholesale procurement prices for California customers should stabilize. The California Public Utilities Commission (CPUC) will be meeting over the next few days to determine how AB1 will be implemented and expects to issue a decision by February 8, 2001.
Although passage of AB1 does address the future obligation for power procurement, the bill does not address Pacific Gas and Electric Company's and Southern California Edison Company's ability to recover past undercollections. There is, however, legislation currently being negotiated under Assembly Bill 18 (AB18) that is intended to address, in some manner, recovery of the past undercollections paid by both Pacific Gas and Electric Company and Southern California Edison Company. A previous draft of AB18 contemplates the utilities providing some form of tangible or intangible consideration to the state.
Other developments that have credit implications for both companies include the utilities' lawsuit against the CPUC and the ongoing negotiations with small producers. Specifically, on February 12, 2001, the U.S. District Court will hear both utilities' petition relating to their position that the filed rate doctrine applies to the recovery of these undercollected wholesale power costs. Under the filed rate doctrine, wholesale power costs filed under FERC tariffs must be passed on to consumers in retail rates. A favorable ruling from the Court strengthens the utilities' position regarding recovery of these undercollections. Regarding the utilities' negotiations with the generators, separate discussions continue with the small generators to reform the pricing terms of the existing contracts. Resolution of these discussions with the small generators is an important component of a comprehensive solution to this crisis.
Within the last two weeks, both Southern California Edison Company and Pacific Gas and Electric Company have not made full scheduled payments to various creditors and to power generators giving both groups the right to force an involuntary bankruptcy of either or both utilities. Additionally, PG&E Corporation, the parent of Pacific Gas and Electric Company, has defaulted on the payment of short-term debt. Edison International, the parent of Southern California Edison Company, remains current on all of its parent company debt obligations. Although the passage of AB1 is a step towards addressing the financial recovery of the utilities, the credit quality of the utilities and their parent remain very weak given that creditors and suppliers have not been fully paid and that the utilities' undercollection of past procurement costs remain unresolved.
As such, the ratings of Southern California Edison Company (Senior Unsecured Debt at Caa2; on review for possible downgrade), its parent, Edison International, (Senior Unsecured Debt at Caa3; on review for possible downgrade) as well as the ratings of Pacific Gas and Electric Company (Senior Unsecured Debt at Caa2; on review for possible downgrade), and its parent, PG&E Corporation (Senior Unsecured Debt at Caa3, on review for possible downgrade) remain unchanged. Without legislative approval of a plan that clearly addresses the utilities' undercollected position and forms the basis for a comprehensive solution, the threat of bankruptcy still remains for the utilities and their holding companies.
No Related Data.
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