Fitch Lowers Outlook for Three CA Utilities

Continued uncertainty surrounding the recovery of record high wholesale prices for electricity prompted the Fitch rating service Tuesday to lower its rating outlook from "stable to negative" for California's three major investor-owned electric utilities. The move came in the midst of another week of late summer heat throughout the state that is pushing up power prices and squeezing supplies.

The lower ratings were applied to Pacific Gas and Electric Co., Southern California Edison Co., and San Diego Gas and Electric Co., each of which is in a slightly different position, but all of which are paying millions of dollars more for power supplies than they can recover in retail rates given rate freezes in effect for PG&E and Edison, and a recently adopted stabilization program for SDG&E.

The situation causes an increase in the utilities' financial costs and risks, Fitch noted, absent regulatory or legislative relief and/or a large drop in electricity prices.

California regulators have not "clearly defined (their) position on a mechanism or timing for recovering power supply costs from consumers after the utilities' frozen tariff periods end," Fitch noted in its announcement on the ratings outlook change. It listed three alternatives for regulators: (1) extending the current transition period to full market-based rates; (2) ending the rate freezes; and (3) giving the utilities' wide latitude to sign bilateral contracts and to hedge in forward markets. The California Public Utilities Commission is scheduled Thursday to consider granting the latter to SDG&E.

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