Funds Fear Low Voltage in California

March 1, 2001 ( - In an effort to reduce their exposure to California energy utilities, three mutual funds sold commercial paper issued by the utilities in an effort to minimize losses.

The three funds, Scudder Cash Investment Trust, Scudder Money Market Series Trust and Dreyfus Founders Money Market Fund, all held short-term commercial notes that were to have been repaid by the utilities in recent weeks.

But when Southern California Edison Co., a unit of Edison International, and PG&E Corp.’s Pacific Gas & Electric Co. unit defaulted on hundreds of millions of dollars of debt and power bills, the funds were at risk for not getting paid on time, the Wall Street Journal reported.

To limit their exposure, the management companies of the funds agreed to buy back the paper at an inflated rate, thereby transferring the risk to the management company.

The newspaper quoted other  sources as saying more such purchases were likely by money market funds due to the size of the commercial paper market and the size of the California utilities which issued the paper. 

News about any purchases will be publicly available during the next release of fund annual and semi-annual  reports.