PG&E; Plans Go to Court
With the future of California’s biggest utility and the rates of millions of customers in the balance, the Pacific Gas & Electric Co. bankruptcy case heads into the home stretch Monday after a year and a half of arguments over energy politics, money and the law.
But the final sprint will be a long one. The hearings that could culminate in the bankruptcy judge choosing either the giant utility’s reorganization plan or an alternative proposed by state regulators are expected to take about six weeks, spilling into 2003.
The outcome of one of the largest bankruptcy cases in history will determine the shape of PG&E; as it emerges from Chapter 11.
“What is at stake is the ongoing operations of one of the largest utilities in the country (and) the consistent or uninterrupted delivery of gas and electricity at rates which are reasonable,” said Ivan Kallick, head of the bankruptcy unit at the law firm Manatt, Phelps and Phillips in Los Angeles.
If PG&E; has its way, the utility will be streamlined into a power delivery service, and its valuable hydroelectric facilities will be spun off to a sister company outside the reach of California regulators. If the state Public Utilities Commission prevails, PG&E; and its generation assets will remain under the PUC’s authority. Each says that no rate increases will be necessary, and that creditors will be paid in full.
Under the weight of $9 billion in energy-related debts, PG&E; sought protection from creditors under federal bankruptcy laws in April 2001.
Since then, the company has logged 13,000 claims from creditors amounting to $13.5 billion. Approximately $1.5 billion of the debt has been paid, mainly to alternative-energy producers.
The case is huge. Scores of hearings have been conducted in a courtroom in a financial district office building here. The docket shows that about 11,000 filings of all sorts have been made with the court, some hundreds of pages long.
Billings for professional fees exceeded $65 million for PG&E; and the court-sanctioned committee of the company’s creditors through July, the U.S. Trustee’s office reported this month, noting that the utility’s parent intends to seek reimbursement for approximately $110 million. Some lawyers for PG&E; have billed $5,000 to $8,000 for 14-hour-plus days. Such fees would come out of the company’s assets.
Experts estimate additional fees paid by other parties, ranging from government agencies and energy companies to PG&E; vendors and retirees, could amount to hundreds of millions dollars more before the case is over.
The confirmation hearings will revolve around the feasibility of the plans, each of which have legal hurdles and require billions of dollars in outside financing and the confidence of Wall Street.
Judge Dennis Montali ultimately will decide whether the plans meet legal requirements and which one would best restore the company’s health, repay creditors and protect utility ratepayers. Both sides have threatened appeals if they lose.
Although PG&E;’s initial plan won much wider support than the PUC’s in balloting by rank-and-file creditors, the PUC has formed an alliance with the official Committee of Creditors in proposing an amended plan.
To prepare for the final battle, both sides have taken aim at the opposition in briefs and signaled their intention to call batteries of financial experts and other witnesses to press their case.
Despite an unfavorable district court ruling on the issue, the PUC has maintained that PG&E; is illegally trying to preempt numerous state laws by transferring many assets into subsidiaries of its parent, PG&E; Corp. Specifically, the commission said that a state law passed at the height of the energy crisis bars utilities from disposing of in-state generation assets until 2006.
The commission also contended the utility’s plan would result in “dangerous gaps” in environmental protection of PG&E;’s vast land holdings and does not assure reliable natural gas service.
“The PG&E; plan is a direct assault on the (state’s) ability to manage a statewide energy crisis,” the PUC said.
PG&E; officials declined to be interviewed for this article, but previously have disputed the PUC point by point. The company’s amended plan calls for keeping most of the land holdings under PUC jurisdiction.
The utility said in a brief filed this month that the PUC lacks the authority to implement its plan to maintain PG&E;’s electricity rates at levels that would cover the utility’s costs and its debt service for decades. “The PUC has no authority to bind future commissions,” the company said.
PG&E; questioned the PUC’s “good faith,” saying that the commission has failed to conduct proper public hearings, as promised, before pressing forward with its reorganization plan.
Finally, the company said the PUC plan is not feasible because it calls for massive financing, including issuance of $8.3 billion in new debt, but would fail to return the company to an investment-grade rating that would allow it to obtain enough financing.
Consumer groups are not keen on either plan. They say that PG&E;’s would result in consumers paying far more for hydroelectric power in the future. They consider the PUC’s plan a “bailout” that will be financed by artificially high rates and billions of dollars accumulated since the PUC passed record electricity hikes during the energy crisis of 2000-2001.
“The PUC plan is lesser of two evils, but evil all the same,” said Nettie Hoge, executive director of The Utility Reform Network. “My feeling is neither [plan] should be confirmed.”
