In the midst of the continuing uncertainty over regulatorytreatment of growing wholesale electricity cost under-collections,Fitch Tuesday assigned a “rating watch negative” designation to thesecurities of California’s two largest investor-owned utilities,Pacific Gas and Electric and Southern California Edison (and itsparent company, Edison International). In addition, it loweredEdison’s commercial paper rating one notch to “F1” from “F1+”.

Fitch cited the need for “significant and extensive regulatorydecisions” to resolve the continuing problem of retail utilityelectric rate under-collections plaguing both utilities. Itindicated that with the “watch negative” status, the independentrating service expects to review the ratings within six months.

A spokesperson for PG&E Corp., the parent of Pacific Gas andElectric, said the Fitch move doesn’t lower any of its ratings, but it”underscores the seriousness of the situation (in California) and theneed for all the parties to come together for a collaborativesolution.” The companies have asked for relief from the CaliforniaPublic Utilities Commission (see Daily GPI, Oct. 30). Edison is the target of aninvestors’ lawsuit which accuses it of illegally booking as revenuethe wholesale power costs that have yet to be collected. (see DailyGPI, Nov. 1).

The Fitch move had no effect on PG&E’s latest utility debtline extension of $1.3 billion that was implemented recently inresponse to the continuing under-collections, the spokespersonsaid. Fitch reiterated that through September the two utilities hadbooked under-collections exceeding $5 billion collectively and thatwholesale power prices continue to exceed the utilities’ frozenretail rate levels.

“While these amounts exceed immediate funding requirements,their recovery through rates is uncertain,” Fitch stated in itsannouncement on the negative watch. “Barring a change in regulatorypolicy, PG&E and SoCal Edison anticipate they will be unable torecover their under-collections before the end of the statutoryrate freeze period ending March 31, 2002.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.