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Merrill Boosts Ratings on California Energy Firms


Merrill Lynch upgraded Edison International (EIX) and PG&E (PCG), the holding company for Pacific Gas and Electric Co., to accumulate.

Fleishman says chances have "gone up significantly" for the power suppliers to reap constructive legislation, which will stabilize California's power market and help utilities. Fleishman says the rise of bankruptcy (while still real) has dropped. He thinks Edison's non-utility operations are worth $8-$10 per share, while PG&E's non-utility operations are worth $12-$13 per share.

In bankruptcy, Fleishman worries some of this value could end up in parent creditors' hands; without bankruptcy, he thinks value provides downside support. Concerns remain in the risk of a $69 price for power bids, as well as talk that California will take warrants in utilities in exchange for securitization.


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