PG&E; May Be About to Close Its Chapter 11

Pacific Gas & Electric Co. said Tuesday that it had struck an eleventh-hour deal with consumer activists that should clear the way for the San Francisco utility to emerge from nearly three years of bitter bankruptcy reorganization wrangling.

PG&E; and the Utility Reform Network jointly filed a proposed reorganization plan late Monday with the California Public Utilities Commission that modifies one of six plans the commissioners are set to consider Thursday.

The proposed plan would allow the utility to fully repay $12 billion in creditor claims, but would slice an estimated $1 billion off the tab to be footed by PG&E;’s 4.8 million customers in Northern and Central California.

TURN, as the San Francisco consumer advocacy group is known, said it wasn’t enthusiastic about the proposal it was co-sponsoring. But the group said it was preferable to the settlement hammered out by PG&E; lawyers and the staff of the California Public Utilities Commission.

“The PG&E; bailout is a fine that the customers are getting stuck with for a crime that they didn’t commit,” said TURN Executive Director Bob Finkelstein. “What we have come up with is a way to make it less costly for customers to pay that fine.”

Other critics of the settlement conceived by PG&E; and the PUC staff -- including three of the five commissioners -- had said it was too lucrative for PG&E; and too costly for ratepayers.

Under the proposal from PG&E; and TURN, projected savings would come from lower interest costs and taxes over the next decade because the utility would refinance some of the $8 billion in debt it intends to sell to pay bankruptcy creditors. PG&E; Corp. shareholders -- and not utility ratepayers -- would be responsible for more than $125 million in corporate bankruptcy costs. But analysts said that wouldn’t make much difference to the utility’s bottom line.

Wall Street analysts speculated Tuesday that the latest proposed reorganization plan was likely to win PUC approval, which should in turn pave the way for Bankruptcy Court confirmation.

Investors pushed PG&E;’s stock up 70 cents a share, or 2.7%, to a 52-week high of $26.65 on the New York Stock Exchange.

“PG&E; believes that the adoption of these modifications will resolve all the issues” facing the PUC and the U.S. Bankruptcy Court, the utility said in a statement.

The utility, but not the parent company, filed for Chapter 11 bankruptcy protection in April 2001 after running up $9 billion in electricity debts during the energy crisis.

PG&E; spokesman Ron Low said the utility approached the consumer group after Commissioner Geoffrey Brown earlier this month urged all participants to look for cheaper ways to repay the debt.

In the last week, it also became clear that there weren’t enough votes to pass the settlement drafted by PG&E; and the PUC, or its close cousin, an alternative proposed by PUC President Michael R. Peevey.

Commissioners met behind closed doors Tuesday to confer on the various reorganization plans. Most declined to comment on the proposal, but Loretta Lynch told Associated Press that it was “egregious.”

Any reorganization plan endorsed by the PUC would go to U.S. Bankruptcy Judge Dennis Montali, who Friday backed the original settlement agreement as “legal and enforceable.”

Finkelstein said the compromise with PG&E; was the best TURN could do because the PUC refused to consider TURN’s own proposal, which would have set aside a portion of rates to repay debt at a projected savings to ratepayers of $2.8 billion. “We have not changed our view that no way should there be a PG&E; bailout,” he said.

As in the settlement agreement, PG&E;’s new proposal has the utility repaying creditors in full, using $8 billion in new borrowings and $4 billion already collected from ratepayers and other sources.

PG&E; still plans to exit bankruptcy with the assistance of a controversial $2.21-billion “regulatory asset,” but with a provision to eliminate it next year.

The regulatory asset is an accounting device designed to boost company equity so that the utility regains an investment-grade rating from Wall Street credit rating firms. Essentially, the regulatory asset is an IOU from ratepayers to the utility, and would be repaid with interest set at 11.22%.

The regulatory asset was a major snag for critics, and three commissioners in their alternative proposals tried to shorten the repayment period or eliminate the asset.

In the new proposal, PG&E; would issue $3 billion in bonds in the year after emerging from bankruptcy to pay off the regulatory asset. The interest on the bonds is expected to be significantly lower than the 11.22% rate on the regulatory asset.

The bonds would be repaid using a guaranteed portion of each ratepayer’s bill, called a “dedicated rate component,” which must be authorized by state legislation.

The utility has not yet calculated how the $1 billion in savings would be passed along to customers in lower rates over the 10-year life of the bonds, Low said. The utility previously had announced that it would lower rates by $670 million in January, and that plan would not change because of the new bankruptcy proposal, he said.