As Soaring Costs Threaten Profits, State Utilities See Stock Prices Fall

Shares of California utility giants PG&E; Corp. and Edison International slid Friday after a Merrill Lynch & Co. analyst cut 2001 earnings estimates, citing the soaring prices the companies continue to pay for electricity.

PG&E;, owner of California’s biggest electric utility, Pacific Gas & Electric, fell $1.38, or 5.5%, to close at $23.56 on the New York Stock Exchange.

Edison, whose Southern California Edison is the state’s No. 2 utility, fell $1, or 4.7%, to $20.44 on the NYSE.

By contrast, the Dow Jones utility stock index inched up 0.1% for the day.

The two companies “are shouldering the higher power costs on their balance sheets” because the prices they pay for electricity have surged while the rates they charge customers are temporarily frozen, Merrill Lynch analyst Steven Fleishman said in a report.

He lowered his 2001 earnings estimate for PG&E; to $2.60 a share from $2.80. Next year’s forecast for Edison was lowered to $2.15 a share from $2.30.

During this year’s hottest months, when demand surged for power to run air conditioners, the price the utilities paid for power more than quadrupled from last year. PG&E; and Edison have asked the state for permission to pass on those costs, totaling more than $5 billion, to customers.

On Thursday, California Public Utilities Commission President Loretta Lynch suspended the requests, saying “they are premature.” The two utilities have filed suits in federal court seeking permission to pass on the costs.

“If there is not a rate increase solution soon, we worry that the utilities may need to pursue more drastic action to get government officials’ attention, including the threat of the ‘B’ word--bankruptcy,” Fleishman said in his report.

Although Merrill doesn’t think the utilities will have to file for bankruptcy protection, “we are much more cautious now about the companies’ ability to recover all or most of the existing power cost balances.”

Merrill didn’t lower estimates for San Diego-based Sempra Energy. The owner of San Diego Gas & Electric is able to pass on some power-buying costs to customers, though its rates have been temporarily capped for homeowners and small-business customers.

Still, Sempra’s shares fell $1.25 to close at $22.94 on the NYSE.