Jan. 16, 2001

Gov. Davis' Backroom Deal Leaves Taxpayers With All The Risk, Allows Utilities to Keep Recent Billion-Dollar Investments

While Utilities Talk of Bankruptcy, Parent Companies Have Plenty of Assets Acquired in Recent Spending Sprees

WASHINGTON, D.C. -- While California's two biggest utilities -- Pacific Gas & Electric and Southern California Edison (SCE) -- claim to have racked up such significant losses that they are facing bankruptcy, their parent companies have embarked upon a billion-dollar spending spree, spending nearly $20 billion on power plants and other purchases over the past few months. These purchases far exceed their stated $12 billion debt from California operations, a Public Citizen analysis shows.

The finding is particularly significant in light of a proposal by California Gov. Gray Davis that the state use its credit to buy electricity from power producers and sell it to the two utilities at cost. Proponents argue the deal is necessary because PG&E and SCE claim that their lack of credit may prohibit them from purchasing the power California needs. Rather than assume the utilities' financial risk, the state of California should purchase or seize electric generation plants from the owners currently manipulating prices.

The governor's deal will make matters worse for California consumers because it shifts risk from investor-owned utilities to the taxpaying public, Public Citizen has concluded. The arrangement does nothing to address the roots of California's energy crisis: deregulation, which has allowed price manipulation on the wholesale market, and poor financial planning by Pacific Gas & Electric and SCE.

Meanwhile, PG&E and Edison International, the parent companies of the two utilities, have spent billions in acquiring international and out-of-state investments over the past several months, according to Public Citizen's report, Claiming Poverty in a Sea of Riches: New Investments by Parent Companies Belie California Utilities' Claims of Bankruptcy. The parent companies should be forced to sell off these assets before having the state act as a surrogate debtor, Public Citizen says. In a double blow to California consumers, PG&E has successfully persuaded the Federal Energy Regulatory Commission to allow it to shield these newly acquired

assets if Pacific Gas & Electric were to file for bankruptcy.

"This back-room deal will place the state in dire risk, because it continues the failed policy of deregulation," said Public Citizen President Joan Claybrook. "Taxpayers should not shoulder the utilities' financial responsibilities until the utilities sell off billions in out-of-state assets they irresponsibly purchased just months ago."

The report details how Edison International, primarily through its Mission Energy subsidiary, has invested more than $10 billion outside the California market since December 1998. These $10 billion in recent purchases are double the $5 billion in debt SCE claims it has incurred this year under deregulation. Edison International also has spent $2.35 billion in stock buyback plans since deregulation began.

PG&E, mostly through its National Energy Group subsidiary, has made at least $9 billion in new purchases and construction since 1999. This exceeds the $6.6 billion debt Pacific Gas & Electric claims it has accumulated under deregulation. PG&E also has initiated more than $1 billion in stock buyback plans since deregulation began. The report describes how these investments were funded in large part by California consumers in the first few years of deregulation.

"PG&E's aggressive attempts to shield its assets should be a warning to California lawmakers that the utilities are not acting in good faith," said Wenonah Hauter, director of Public Citizen's Critical Mass Energy and Environment Program. "California consumers helped pay for these billion-dollar investments under deregulation, so these assets -- not taxpayer-funded credit guarantees -- must be the first line of defense against deregulation's failure."

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To view a copy of Public Citizen's report, please go to http://www.citizen.org/cmep/restructuring/AnalysisCAUtilityclaimsbankruptcy.htm