The Electricity Shortage

John Mage jmage at panix.com
Thu Feb 8 10:40:09 PST 2001



> Jordan Hayes wrote:
> >
> > > There wouldn't be a shortage of Electricity in California
> >
> > There's no shortage of electricity in California.
> >
> > There's a shortage of money.
>
> Why do you think there is a shortage of money, Jordan?
>
> RO

I think there may have been a major breakthrough into the official national media; the real shortage of money story just broke on AP.

john mage

February 8, 2001

Utility Money Shift Causes Outrage

By THE ASSOCIATED PRESS

Filed at 12:47 p.m. ET

SAN FRANCISCO (AP) -- It all sounds so sneaky to Californians

facing sharply higher energy bills, but diverting billions of dollars from

the state's two biggest utilities made perfect sense on Wall Street.

In the four years since California decided to deregulate its electricity

market, holding companies Edison International and PG&E Corp.

have milked cash from their now-impoverished utilities to enrich

investors and affiliated businesses that are prospering amid the current

chaos.

The financial juggling act, documented in state-ordered audits of the

utilities, has reinforced the perception that Southern California Edison

and Pacific Gas and Electric wouldn't be so destitute if they had

hoarded the cash that they accumulated between 1996 and 1999.

``It's quite clear that the parent companies vacuumed out the utilities

and siphoned out all the wealth so they could put it where they

thought it would be safe,'' said Nettie Hoge, who heads The Utility

Reform Network, a critic of the utilities.

The California Public Utilities Commission was expected to open an

investigation Thursday into how Edison and PG&E shifted assets

around. The PUC is examining whether the utilities intentionally

violated rules that allowed them to set up the holding companies only

if they didn't harm customers.

``It's easy to understand why everyone seems to get outraged and

wonders who was watching the store while all this went on,'' PUC

Commissioner Carl Wood said. ``But what people are forgetting is

that the store wasn't being watched by design.''

Neither Edison nor PG&E returned phone calls seeking comment

about the planned investigation. Both companies have insisted their

actions were legal, accepted business practices.

The utilities say they have suffered combined losses exceeding $12

billion since May. They've incurred the losses buying wholesale

electricity at high prices they can't recover from customers under the

state's deregulation law.

The PUC likely will focus on efforts by Edison and PG&E to insulate

their thriving unregulated businesses from the financial meltdown of

the utilities. The holding companies used a technique known as

``ringfencing,'' which makes it difficult for courts to seize the assets or

profits of a business to pay the bills of affiliated companies.

The holding companies have coddled these businesses -- Edison's

Mission Group and PG&E's National Energy Group -- because they

don't face the same regulations governing utilities.

Since 1996, Edison invested $2.5 billion in the Mission Group and

just $153 million in SoCal Edison, according to a state-ordered audit

by KPMG. During that period, the Mission Group returned $400

million in dividends to Edison International while SoCal Edison

turned over $4.7 billion.

From 1997 to 1999, PG&E invested $838 million in its unregulated

subsidiaries and provided nothing to its utility, according an audit by

the Barrington-Wellesley Group. During that same time, PG&E's

utility paid its holding company $4 billion.

Consumer activists believe the money shifted from the utilities to the

unregulated businesses should be factored into a proposed

ratepayer-backed bailout under consideration in the Legislature.

``Ratepayers should not be asked to dig into their pockets when the

companies aren't willing to dig into theirs,'' Hoge said.

But Wall Street is apparently convinced that lawmakers stand little

chance of piercing the ring. The state-ordered audits found no

evidence that ringfencing violated any rules.

Besides investing heavily in their unregulated businesses, both parent

companies dipped into the utilities' coffers to provide shareholders

with dividends and stock repurchases.

Edison International spent $4.6 billion on shareholder dividends and

stock buys from January 1996 through November 2000, according to

the audit. PG&E spent $4.8 billion from January 1997 through

September 2000.

The cash crunch at the utilities prompted their holding companies to

suspend their dividends this year, causing a double whammy for

shareholders, who've recently seen heavy losses.

Edison ended Wednesday at $13 a share on the New York Stock

Exchange, falling more than 50 percent from its 52-week high. PG&E

finished regular trading at $12.90 a share, roughly a 60 percent

decline from its high of $31.75 in September.

The utilities have come under fire for not hoarding more money, but

analysts say Wall Street wouldn't have tolerated billions of dollars

sitting in money-market accounts.

``That's an invitation for someone else to take over the company,''

said Standard & Poor's analyst Peter Rigby. ``That's just dumb

business.''



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