First there was a surge in market rates. Then companies found themselves unable to cover their costs. Billions of dollars in losses quickly followed.

This scenario largely describes the savings-and-loan debacle of the 1980s. S & Ls; ran aground financially after interest rates on deposits rose far higher than the rates they charged on fixed-rate mortgages made years earlier.

It also helps explain why PG & E; Corp. and Edison International were the only companies in the Standard & Poor's Utility Index to drop during the third quarter, when the indicator had its biggest gain in more than 13 years.

The owners of California's two largest utilities have recorded more than $4.2 billion in losses since May because they couldn't charge enough to pay for the electricity they purchased at wholesale prices.

As a summer heat wave hit California, power costs for the utilities Pacific Gas & Electric Co. and Southern California Edison Co., respectively rose as much as sixfold from a year earlier. They far exceeded rate limits established when the state deregulated the utility industry in 1996.

PG & E; and Edison might need a multibillion-dollar public bailout if the losses continue, the Wall Street Journal reported last week. That's what the S & Ls; received in the end, and it cost taxpayers tens of billions of dollars.

"California consumers have a legitimate need for California's utilities to remain solvent, and the state must be committed toward that end," Edison quoted Gov. Gray Davis as saying in a statement.

The statement didn't make reference to any bailout, though. Instead, the company expressed support for the governor's efforts to revamp what its top executive, John E. Bryson, called a "badly flawed" wholesale market.

Edison was the third quarter's worst performer in the S & P; utility index. Shares of the Rosemead-based company lost 5.7 percent in the quarter. PG & E;, based in San Francisco, fell 1.7 percent.

The declines contrasted with the index's 31-percent surge, stemming largely from gains among shares of power producers and natural-gas distributors. The index hadn't risen that much in a quarter since at least the fourth quarter of 1987.

Even Sempra Energy, the owner of San Diego Gas & Electric, managed to rise. The stock gained about 22 percent even though the state's utility regulators set limits on electricity rates for the utility's customers through next year.

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