California Utility Inches Closer to Bankruptcy

Pacific Gas & Electric threw caution to the wind and ignored months of warnings that California was headed toward an energy crisis, which auditors say could have kept the utility from facing bankruptcy.

California can expect to shell out $1.3 billion for emergency electricity before lawmakers find a fix for the state's failed deregulation program.

The state has been under a Stage 3 power alert for the 16th consecutive day, with electricity reserves alarmingly low and power managers frantically trying to find energy to avoid blackouts.

Pacific Gas & Electric and Southern California Edison report being $12.7 billion in debt due to soaring wholesale power prices and the state's 1996 deregulation law that prohibits them from recouping their costs from customers.

The independent audit confirmed Pacific Gas & Electric’s claims that it was on its way to financial ruin. The report also accused the utility of digging its own grave by not responding to warnings that the state’s electricity market was in trouble. Auditors say that the company did not realize electricity wholesalers would shut off the utility’s credit until it was too late, and in billions of dollars in debt.

Pacific Gas & Electric also did not develop a cash conservation program until last December.

The audit reports that Pacific Gas & Electric turned over nearly one-third of its cash flow to its corporate parent, PG&E Corp., during the first nine months of 2000. Pacific Gas & Electric paid PG&E Corp. $632 million in dividends during that time and $4.7 billion since 1997.

PG&E Corp. spent $800 million of the money it collected from Pacific Gas & Electric to support other subsidiaries, the audit says, while providing no cash, credit or other financial assistance to its struggling California utility.

A similar audit on Southern California Edison says the utility gave its parent company $4.8 billion in dividends in the five years leading up to the electricity crisis, which is enough to cover the $4.5 billion power bill utility has accrued since May.

With both utilities on the cusp of bankruptcy and unable to buy power on credit from wholesalers, the state ran through $400 million in emergency funds in less than two weeks of buying power itself.

The California Senate Appropriations Committee began discussing a bill that would set aside another $500 million to continue short-term purchases while the state negotiates long-term contracts.

A proposed long-term solution under discussion could penalize users who consume more energy than believed necessary.

Another bill in discussion calls for the state to issue revenue bonds to help the utilities pay off their debts, then pay the bonds back by taking a stake in the companies. The utilities want rate increases, but have opposed giving the state a stake.