Fitch threatens downgrade of PG&E and SoCal

Calling proposed electric retail rate increases 'insufficient,' Fitch said it will lower Southern California Edison Co.'s and Pacific Gas & Electric Co.'s bond ratings to less than investment grade, if the California PUC affirms its draft order Thursday. Fitch said the PUC's 7-15% proposed increase in rates for retail customers is well below existing wholesale power costs, and lacks a pass through mechanism for costs which exceed retail rates.

Jan. 4, 2001

2 min read

Calling proposed electric retail rate increases "insufficient," Fitch said it will lower Southern California Edison Co.'s and Pacific Gas & Electric Co.'s bond ratings to less than investment grade, if the California PUC affirms its draft order Thursday.

Fitch said the PUC's 7-15% proposed increase in rates for retail customers is well below existing wholesale power costs, and lacks a pass through mechanism for costs which exceed retail rates. The ratings agency said the 90-day, temporary rate increase, if approved, will not stop the utilities' cash drain, and lenders are unlikely to supply much-needed funding under these conditions.

Pacific Gas & Electric, a unit of PG&E Corp. and Southern California Edison, a unit of Edison International, had asked the PUC for immediate rate hikes of 26% and 30%, respectively. Fitch said it will act on the ratings after the PUC issues a final decision.

Moody's Investors Service and Standard & Poor's have also warned that they will cut the utilities' ratings to junk status if they do not get enough sufficient rate relief from California regulators.

In a statement, Southern California Edison (SCE) said the draft order, if adopted, will make it likely that power generators will decline to sell sufficient power to California to meet customers' needs.

"There is no way that SCE, or any other privately owned utility, can continue to buy wholesale power at 30�/kw-hr and at the same time be forced by the state to sell it at 7�/kw-hr, which the proposed decision would provide to cover the cost of wholesale power purchases," the company said.

Southern California Edison has filed federal lawsuits against the Federal Energy Regulatory Commission (FERC) and the PUC. The federal lawsuit against the FERC seeks to require the federal agency to reinstate traditional, cost-based rates for the generators selling power to the utility. A judge could issue a ruling as soon as Friday.

In its lawsuit against the PUC, Southern California Edison is asking the court to enforce a legal principle that states must pass through to customers federal tariffs on wholesale power rates. The lawsuit against the PUC is scheduled for a decision on summary judgment Monday in the US District Court in Los Angeles.