Bankruptcy Designed to Keep Things Going

The lights stay on. Employees keep getting paid. In most other ways, too, business runs as usual.

That is what legal experts say would happen if Pacific Gas & Electric Co.--or Southern California Edison or any other electric utility, for that matter--were to file for Chapter 11 bankruptcy protection.

Federal bankruptcy law temporarily shields Chapter 11 companies from creditors’ legal claims. That, in turn, gives the debt-burdened businesses time to reorganize their finances and find a way to keep operating.

Over the short run, “basically, life goes on,” said Richard Levin, a Los Angeles bankruptcy lawyer.

In exchange for receiving protection from creditors, though, a business in Chapter 11 submits to the authority of a bankruptcy judge.

To keep a debtor business running smoothly, a bankruptcy judge quickly issues a batch of what are known as first-day orders after the court case is filed. These orders clear the way for, among other things, the company to pay employees, to receive fresh banking financing to cover operating expenses and to hire lawyers, accountants and other advisors to navigate the bankruptcy process, which easily could last several years.

A bankruptcy case can be filed any time--meaning evenings and weekends, as well as regular business hours--provided that the debtor company makes arrangements with a bankruptcy judge.

While the immediate effect of a bankruptcy filing can be nearly invisible, the long-term outcome is a far different, much more unpredictable matter. Eventually, the bankruptcy court would have to determine such major issues as possible utility rate increases, the amount power generators and other creditors are to be paid and how sharply the company’s costs, work force and service might be cut.

The bankruptcy judge also could help determine the course of the deregulation--or re-regulation--of the electricity industry in California.