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THE CALIFORNIA ENERGY CRISIS

Many Turns Still Ahead on Road to Bankruptcy

Utilities aren't helped by a court loss and credit deadlines. But leeway remains for making a deal.

February 13, 2001|NANCY RIVERA BROOKS and STUART SILVERSTEIN | TIMES STAFF WRITERS

The ultimate power play--a trip to bankruptcy court for Southern California Edison and Pacific Gas & Electric--loomed larger Monday with a setback in federal court and the approaching end of some debt forgiveness periods.

But even if creditors were to petition to put Edison and PG&E into involuntary bankruptcy, it doesn't automatically mean that the utilities' business operations would come under the supervision of federal bankruptcy court.

In fact, there still would be a chance to negotiate a deal to avert full-fledged bankruptcy. That's because federal law would grant Edison and PG&E 20 days after receiving their court summonses during which they could indicate whether they plan to contest the bankruptcy case. And they could seek extensions to buy even more time before the court took authority over their business operations.

During the Edison and PG&E response period, observers say, the sense of urgency stirred by the court maneuvers might even aid in the crafting of a deal by helping state lawmakers win public support for rescuing the utilities.

U.S. District Judge Ronald S.W. Lew on Monday turned down Edison's request for an immediate electricity rate hike. The judge instead agreed to set an early trial date for Edison's lawsuit challenging the retail rate caps that currently freeze the price the utilities can charge for electricity.

Lew's ruling "is a negative," said Lori Woodland, an analyst with credit rating firm Fitch Inc. in Chicago. "This increases the chance that trade creditors will push more vigorously for a solution."

The threat that Edison could be taken to bankruptcy court could increase this week because its banks, power suppliers and other creditors have set deadlines today and Thursday for the repayment of about $800 million in debts on which it has defaulted.

Spokesman Gil Alexander said Edison is fighting to avoid seeking bankruptcy law protection. "We continue to do everything in our power to avoid bankruptcy, but we can't speak for our creditors and their intentions," Alexander said.

Shares of Edison International, parent of Southern California Edison, closed down 57 cents Monday at $12.53 after falling as low as $11.90. PG&E Corp. fell 50 cents to $12.55 after falling to $11.12. Both trade on the New York Stock Exchange.

If Edison and PG&E were to find themselves contesting involuntary bankruptcy petitions, the utilities could continue to operate freely, without the normal restrictions placed on debtor companies in bankruptcy. At the same time, the companies would have some of the protections of bankruptcy law. Specifically, the companies temporarily would be shielded from creditor lawsuits and from having to pay their accumulated debts.

But if the creditors want to take a particularly tough stance against Edison and PG&E, as a tactical maneuver they probably would petition for Chapter 7 bankruptcies, said Ken Klee, a bankruptcy specialist at UCLA law school. Such a filing would call for the companies to be liquidated.

Under Chapter 7, Klee noted, Edison and PG&E still would have the right to contest the bankruptcy petition. But Klee--who also is a partner in a law firm representing FPL and Caithness, companies that provide power to Edison and PG&E--noted that the public relations fallout from operating under the prospect of a Chapter 7 liquidation could be particularly damaging to their businesses.

Under that scenario, he said, Edison and PG&E could seek to convert the case to a Chapter 11 proceeding, which would enable them to keep operating and reorganize while under court protection.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Power Points

Background

The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state's biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.

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Daily Developments

* A federal judge rejected Edison's request for an immediate rate hike.

* The grace period under which 23 banks agreed not to take Edison to court for a $200-million default ends today.

* Three power suppliers formed a creditors committee, a first step toward pushing Edison and PG&E into bankruptcy court involuntarily.

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Verbatim

"This is not a do-it-all court for all of your concerns."

--U.S. District Judge Ronald S.W. Lew

Complete package and updates at www.latimes.com/power

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Times staff writer Nancy Vogel in Sacramento contributed to this story.

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