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State help needed to avert bankruptcy says Californian utility

California’s second largest utility, Southern California Edison (SCE), has reacted to a newspaper report about its financial position, by warning lawmakers that it will go bankrupt unless immediate legislative action is taken to help it solve the crisis. In a letter sent to California lawmakers Friday, the company said that it “SCE cannot avoid bankruptcy and the state cannot get out of the energy buying business without immediate legislative intervention.”

The letter, signed by the company’s senior vice president for External Affairs Bob Foster, was issued in response to a newspaper report which suggested the utility may be able to avert bankruptcy without state intervention.

Californian lawmakers are currently debating three bills, which are designed to restore the utility to credit-worthiness.

For nearly a year, California has been experiencing a severe power shortage. The crisis has been blamed on a flawed deregulation programme begun five years ago which capped retail prices whilst allowing fluctuation in wholesale electricity prices. An increase in demand within the state has not been matched and it is estimated that a further 5000 MW of new generation capacity is needed to restore the balance.

The squeeze on pricing has left utilities facing huge bills for the power they purchase, which they have not been able to pass on to the consumers that they serve. The two biggest utilities, Pacific Gas and Electricity Co. (PG&E) and the SCE have accumulated billions of dollars of debt and PG&E has already declared bankruptcy. Overall, the state’s utilities are $13 bn in debt.

No new generation capacity has been built in the state for the past five years, despite a 29 per cent growth in California’s economy and a 24 per cent increase in electricity consumption. This stagnation has been blamed on the lack of incentives to build new plants and the difficulty of obtaining permits in the face of strong local and environmentalist opposition.