2 Utilities on Negative Debt Rating Watch

Growing uncertainty in California’s electricity market prompted the Fitch debt-rating agency Tuesday to put the debt of Southern California Edison and Pacific Gas & Electric on a negative rating watch.

Fitch in September changed the outlook for the utilities’ debt to negative, and the latest change “is the next step in a deteriorating situation,” said Fitch analyst Lori Woodland in Chicago.

The California utilities are unable to pass along to customers the full wholesale cost of electricity, which soared starting in late May, because of a freeze on retail rates until March 31, 2002, at the latest.

The Federal Energy Regulatory Commission last week declined to order electricity generators to refund some of their record revenues. The FERC’s decision left the question of who will pay the more than $6 billion in uncollected wholesale electricity costs--the investor-owned utilities, ratepayers or both--in the hands of California regulators and legislators.

Fitch is particularly concerned about pressures on the utilities’ liquidity as the companies borrow money to finance the above-retail electricity costs.

“There’s so much money at stake in California . . . and many, many different parties have to come together [to produce a solution], and that adds to the uncertainty,” Woodland said.

The move affects the securities on Southern California Edison and its Rosemead-based parent, Edison International, as well as Pacific Gas & Electric Co. Left unchanged was the debt of PG&E; Corp., parent of the San Francisco utility. Fitch also lowered the rating on Southern California Edison’s commercial paper, or short-term corporate IOUs, by one notch to “F1” from “F1+.”

PG&E; spokeswoman Renee Parnell said Fitch’s action “underscores the seriousness of the situation.”

Fitch’s ratings of Edison securities remain strong and are slightly higher than the ratings by the other agencies, Edison spokesman Kevin Kelley said.

The other big rating agencies--Standard & Poor’s and Moody’s Investors Service--have not changed their stance on California utility debt, which they had placed on negative outlook about two months ago.

“We know that there is near-term pressure on cash flows, but . . . efforts are being made to address the situation,” said David Bodek, an analyst with New York-based Standard & Poor’s.

In trading on the New York Stock Exchange, Edison International shares fell 13 cents to close at $22.69 and PG&E; lost 69 cents to close at $26.56.