Fitch Puts 2 CA Utilities on Negative Watch

In the midst of the continuing uncertainty over regulatory treatment of growing wholesale electricity cost under-collections, Fitch Tuesday assigned a "rating watch negative" designation to the securities of California's two largest investor-owned utilities, Pacific Gas and Electric and Southern California Edison (and its parent company, Edison International). In addition, it lowered Edison's commercial paper rating one notch to "F1" from "F1+".

Fitch cited the need for "significant and extensive regulatory decisions" to resolve the continuing problem of retail utility electric rate under-collections plaguing both utilities. It indicated that with the "watch negative" status, the independent rating service expects to review the ratings within six months.

A spokesperson for PG&E Corp., the parent of Pacific Gas and Electric, said the Fitch move doesn't lower any of its ratings, but it "underscores the seriousness of the situation (in California) and the need for all the parties to come together for a collaborative solution." The companies have asked for relief from the California Public Utilities Commission (see Daily GPI, Oct. 30). Edison is the target of an investors' lawsuit which accuses it of illegally booking as revenue the wholesale power costs that have yet to be collected. (see Daily GPI, Nov. 1).

The Fitch move had no effect on PG&E's latest utility debt line extension of $1.3 billion that was implemented recently in response to the continuing under-collections, the spokesperson said. Fitch reiterated that through September the two utilities had booked under-collections exceeding $5 billion collectively and that wholesale power prices continue to exceed the utilities' frozen retail rate levels.

"While these amounts exceed immediate funding requirements, their recovery through rates is uncertain," Fitch stated in its announcement on the negative watch. "Barring a change in regulatory policy, PG&E and SoCal Edison anticipate they will be unable to recover their under-collections before the end of the statutory rate freeze period ending March 31, 2002.

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