Utility Money Shift Causes Outrage By MICHAEL LIEDTKE .c The Associated Press SAN FRANCISCO (AP) - It all sounds so sneaky to Californians facing sharply higher energy bills, but diverting billions of dollars from the state's two biggest utilities made perfect sense on Wall Street. In the four years since California decided to deregulate its electricity market, holding companies Edison International and PG&E Corp. have milked cash from their now-impoverished utilities to enrich investors and affiliated businesses that are prospering amid the current chaos. The financial juggling act, documented in state-ordered audits of the utilities, has reinforced the perception that Southern California Edison and Pacific Gas and Electric wouldn't be so destitute if they had hoarded the cash that they accumulated between 1996 and 1999. ``It's quite clear that the parent companies vacuumed out the utilities and siphoned out all the wealth so they could put it where they thought it would be safe,'' said Nettie Hoge, who heads The Utility Reform Network, a critic of the utilities. The California Public Utilities Commission may open an investigation into how the holding companies shifted around their assets. The PUC also told utilities the burden would be on them to show they didn't violate decades-old rules that allowed them to set up the holding companies only if it didn't hurt customer service. Commissioners decided Thursday to wait another week before deciding whether an investigation is warranted, and put off most of its other power crisis related actions at the request of state lawmakers. ``It's easy to understand why everyone seems to get outraged and wonders who was watching the store while all this went on,'' PUC Commissioner Carl Wood said. ``But what people are forgetting is that the store wasn't being watched by design.'' The utility holding companies maintain they followed the rules spelled out in the deregulation law. They say they did nothing more than give shareholders a fair investment return and characterize the complaints as misinformed grandstanding. ``We have absolutely nothing to be concerned about,'' said Tom Higgins, an Edison International senior vice president. ''(The PUC) has looked at this issue time and again and found nothing wrong each time, so let them look again.'' The utilities say they have suffered combined losses exceeding $12 billion since May. They've incurred the losses buying wholesale electricity at high prices they can't recover from customers under the state's deregulation law. The PUC likely will focus on efforts by Edison and PG&E to insulate their thriving unregulated businesses from the financial meltdown of the utilities. The holding companies used a technique known as ``ringfencing,'' which makes it difficult for courts to seize the assets or profits of a business to pay the bills of affiliated companies. The holding companies have coddled these businesses - Edison's Mission Group and PG&E's National Energy Group - because they don't face the same regulations governing utilities. Since 1996, Edison invested $2.5 billion in the Mission Group and just $153 million in SoCal Edison, according to a state-ordered audit by KPMG. During that period, the Mission Group returned $400 million in dividends to Edison International while SoCal Edison turned over $4.7 billion. >From 1997 to 1999, PG&E invested $838 million in its unregulated subsidiaries and provided nothing to its utility, according an audit by the Barrington-Wellesley Group. During that same time, PG&E's utility paid its holding company $4 billion. Consumer activists believe the money shifted from the utilities to the unregulated businesses should be factored into a proposed ratepayer-backed bailout under consideration in the Legislature. ``Ratepayers should not be asked to dig into their pockets when the companies aren't willing to dig into theirs,'' Hoge said. But Wall Street is apparently convinced that lawmakers stand little chance of piercing the ring. The state-ordered audits found no evidence that ringfencing violated any rules. Besides investing heavily in their unregulated businesses, both parent companies dipped into the utilities' coffers to provide shareholders with dividends and stock repurchases. Edison International spent $4.6 billion on shareholder dividends and stock buys from January 1996 through November 2000, according to the audit. PG&E spent $4.8 billion from January 1997 through September 2000. The cash crunch at the utilities prompted their holding companies to suspend their dividends this year, causing a double whammy for shareholders, who've recently seen heavy losses. Edison ended Wednesday at $13 a share on the New York Stock Exchange, falling more than 50 percent from its 52-week high. PG&E finished regular trading at $12.90 a share, roughly a 60 percent decline from its high of $31.75 in September. The utilities have come under fire for not hoarding more money, but analysts say Wall Street wouldn't have tolerated billions of dollars sitting in money-market accounts. ``That's an invitation for someone else to take over the company,'' said Standard & Poor's analyst Peter Rigby. ``That's just dumb business.'' On The Net: Standard and Poor's California energy crisis page: http://www1.standardandpoors.com/ResourceCenter/Reference/CorporateF inance Edison International: http://www.edison.com PG&E Corp.: http://www.pgecorp.com
