After Southern California Edison refused to pay $596 million in debt obligations last week, the company was forced to cut off power to millions in the San Francisco area. In effect, Standard & Poor's Corporate Ratings Group downgraded the corporate bonds of two major California utilities.

According to Bern Fischer, a director with Standard & Poor's Ratings Services, the corporate group downgraded SoCal Edison's bond rating to D, for default. "The D reflects their decision not to make payments that were due on maturing debt obligations," Fischer said.

Similarly, S&P downgraded Pacific Gas & Electric's corporate bond rating to CC-Credit Watch Negative, which is the lowest rating before default.

With rolling blackouts affecting central and northern California last week, Eric Hedman, an associate director at S&P, said the blackouts would have to continue for quite some time before it would have any effect on the cashflow of the stranded-cost securitizations in the state.

However, if that were to happen, the transactions have the benefit of an annual true-up mechanism, which is a credit support mechanism, whereby any losses would be made up in the next year's charges, or any excesses would offset any required increases in the next year.

"We continue to closely monitor the situation, especially in light of the fact that our corporate ratings group took ratings action," Hedman said.

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