Tentative Solutions to Power Crisis Boost Some Utilities' Stocks

Lawmakers are kicking into gear and conservation is becoming more of a habit, so California's energy crisis promises to ease a bit this week. Even investors unclenched somewhat, as the shares of two threatened utilities and of power wholesalers rose in the last few days.

"This week looks better," said Kellan Fluckiger, chief operating officer of the California Independent System Operator, about the possibility of blackouts. Conservation is saving from 600 to 1,600 megawatts a day, said Fluckiger, and may keep the state from blackouts like last week, providing the weather cooperates.

State lawmakers also have started mulling a plan that will keep Pacific Gas & Electric, a PG&E (PCG Quote - Cramer on PCG - Stock Picks) subsidiary, and Edison International's (EIX Quote - Cramer on EIX - Stock Picks) Southern California Edison out of bankruptcy and in business, under a plan in which the state would let them pay off their debts through rate increases, in return for surrendering the plants to the state.

Merrill Lynch analyst Steven Fleishman wrote Monday that the proposed hydroelectric surrender "seems to take a lot more value away from PG&E than Edison." The stocks for both utilities, which have dropped sharply in the last month, have recovered slightly since the state's intervention last week.

Southern California Edison, which dropped 59.3% between Dec. 18 and Jan. 17, rose slightly after the state agreed to a $400 million purchase of power. It closed higher today, up 13 cents, or 1.4%, to $9.06.

PG&E closed down today 43 cents, or 4.3%, to $9.75, a 1.3% increase from Wednesday's close.

The last week also has brought some relief to the shares of energy wholesalers, which have been selling to California utilities and have suffered from fears that bankrupt utilities would leave them holding the bag for unpaid bills.

Reliant Energy (REI Quote - Cramer on REI - Stock Picks) , which dropped 20.9% from the beginning of the month until last Wednesday, has risen 6.2% since then, closing up 4.3% today.

Dynegy (DYN Quote - Cramer on DYN - Stock Picks), which lost 8% of its share value from the start of the month until last week, has gained 11.6% since then.

California power officials were talking with appointees of the Bush administration Monday about renewing an order forcing natural gas producers to continue to sell to California utilities. The order expires midnight Tuesday.

Fluckiger said the order had created extra megawatts and a more positive attitude from power producers.