PG&E; Expects to Write Off $4 Billion

PG&E; Corp., putting a financial exclamation point on the disaster that has befallen the state’s utilities, said Friday that it expects to write off more than $4 billion in electricity costs it may never be able to recover.

In a government filing, the parent company of the state’s largest electric utility said that it expects to take a $4.1-billion charge against its results for the fourth quarter of 2000, and that more big charges may be coming this year.

The fourth-quarter charge undoubtedly will wipe out any profit that PG&E;, the parent of Pacific Gas & Electric, might have earned in the quarter and probably will lead to a multibillion-dollar loss instead.

The charge also heightens the risk of a bankruptcy filing by the utility, analysts said. That risk has hovered over the company and its counterpart, Southern California Edison, for months now because the utilities don’t have the money to keep making payments to many of their creditors.

PG&E; and SCE parent Edison International indicated a week ago that such financial charges might be in the offing for the fourth quarter, when the state’s electricity crisis was really taking hold. But with Friday’s announcement, PG&E; formally acknowledged that it is unlikely to be made whole for the billions of dollars it has spent for electricity for its customers.

The utilities haven’t reported financial results since the third quarter ended Sept. 30. Back then, San Francisco-based PG&E; was still profitable, and in the first nine months of 2000, it had a profit from its continuing operations of $772 million on revenue of $18.2 billion.

Although the crisis already was developing, PG&E; was able to stay in the black through September because it expected to be eventually repaid for the billions of dollars it was spending for power over and above what it was taking in from customers.

But the fourth-quarter charge means that PG&E; is effectively saying it is unlikely to ever be made whole for at least $4 billion of that amount, “absent a regulatory or legislative solution that provides for full recovery” of the costs PG&E; has paid. The charge is then subtracted from PG&E;’s income.

And PG&E; warned Friday that, in addition to the fourth-quarter charge, it might have to take another charge for the first quarter ending today unless it gets that help.

The two utilities are buried under billions of dollars of debt and starving for cash because, under the state’s 1996 deregulation of the industry, they have been forced to borrow heavily to pay skyrocketing wholesale prices for electricity at the same time their customers’ rates were frozen.

Edison, based in Rosemead, has said it might have to take a fourth-quarter charge of $2.7 billion.

And PG&E; said Friday that, because of the enormous charges it is facing for the last two quarters, the Pacific Gas & Electric unit is now in danger of having a negative net worth--meaning its debts would outweigh the value of its assets.

That could make creditors even more skittish about giving the utility and its parent more time to pay their debts and thus “increases the possibility of a bankruptcy filing,” said Paul Fremont, an analyst with Jefferies & Co. in New York.

Douglas Christopher, an analyst with Crowell, Weedon & Co. in Los Angeles, said he also sees the bankruptcy risk being “much higher now than I did back in January, when it looked like they were going to work this out” with state regulators in a way that would bolster the utilities’ financial health.

The state stepped in with plans to spend more than $40 billion over the next decade to buy electricity because the cash-strapped utilities can no longer afford it. Then on Wednesday, state utility regulators adopted the largest electricity rate hike in the state’s history, with increases of up to 46%, to help ease the power crisis.

The utilities’ beleaguered stocks rose sharply Wednesday after the rate hike was announced, as investors initially thought the higher rates approved by the Public Utilities Commission would boost the utilities’ financial standing.

But after further review, Wall Street concluded that the nearly $5 billion a year in added cash to be collected from the higher rates will mainly go to reimbursing the state for its power purchases rather than easing the utilities’ debt loads, and that helped push the stocks lower Friday, analysts said.

In conference calls with some of their creditors Friday, PG&E; and Edison effectively confirmed that scenario. PG&E;’s chief financial officer, Peter Darbee, said that the state “took a positive, long-overdue step in authorizing a rate increase,” but that its “actions do nothing to repay the utilities’ prior uncollected costs” of obtaining power to resell to its customers.

“This is troubling because the recovery of these past costs will provide the cash to pay off the company’s creditors,” Darbee said.

PG&E;’s announcement Friday prompted a 41-minute halt in trading of the company’s stock on the New York Stock Exchange to give investors time to absorb the news. After the halt, PG&E; closed down 17 cents on the day, to $12.45 a share, and Edison’s shares fell 36 cents to $12.64 on the Big Board. Both finished above their lows of the day, however.

The utilities were supposed to file their fourth-quarter and full-year 2000 results with the Securities and Exchange Commission by Monday, but both companies said Friday that they have requested extensions of up to two weeks.