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Power Markets Week

The California Public Utilities Commission Tuesday retained UBS Warburg to arrange the financing needed to implement its reorganization proposal for Pacific Gas and Electric.

Warburg will act as financing and capital market arranger for the PUC and assist it in analyzing, structuring, negotiating and putting into effect any financing by PG&E. ”The PUC‘s plan of reorganization for PG&E offers an attractive investment opportunity, and we are confident that we can obtain the financing required for the plan,” Kenneth Crews, Warburg vice president said in a statement.

At a news conference in San Francisco announcing the agreement, Gary Cohen, PUC general counsel, said the commission filed a motion with the Bankruptcy Court in San Francisco asking that Warburg’s fees be paid from PG&E‘s estate.

The PUC would pay Warburg $ 3-million when and if the court approves the motion, $ 2.5-million when Warburg supplies a specific financing plan and $ 2.5-million more when the commission accepts the plan. In addition, Warburg would receive fees ranging from 1-4% for arranging financing instruments. PG&E last year proposed a restructuring plan that would spin off the utility’s transmission and power generation units into separate entities under the parent company PG&E Corp. The PUC opposed the plan, saying it would violate numerous state laws and offered an alternative plan earlier this year that would keep the utility intact.

Crews said Warburg believes the PUC alternative is preferable to PG&E‘s alternative and should attract investment more easily because it would allow a vertically integrated utility to emerge from bankruptcy. ”The world has changed dramatically since PG&E declared bankruptcy,” he said. ”I don’t think that anyone would say it would be easier to finance four separate companies today, and those companies that are continuing to do well — Duke, DTE and Dominion — are integrated companies.”

Bankruptcy Court Judge Dennis Montali has agreed to allow PG&E‘s creditors to conduct a non-binding vote on the two plans to conclude Aug. 12, but Cohen said he believes the ultimate decision will come from the judge this fall after he holds hearings on whether either plan is legally confirmable. Cohen said Warburg has ”tremendous credibility” in the financial community, and he believes the agreement will help the commission win support for its restructuring plan on Wall Street.

PG&E criticized the PUC for further harming its depressed share value with a plan that cannot legally be confirmed. ”It is no surprise that the commission could find a financier who would be attracted to a deal that discounts and dilutes the value of PG&E‘s stock,” the company said. ”However, this plan is illegal and infeasible, and would result in the company being unable to invest capital in needed infrastructure. Furthermore, the PUC‘s plan would not return PG&E to investment-grade status, a necessary step to get [the state] out of the power buying business.”

In other PG&E news, Linda Ekstrom Stanley, the U.S. Trustee in the utility’s bankruptcy case, will be leaving her post effective July 3 at the request of U.S. Attorney General John Ashcroft. Stanley said on Tuesday that she received Ashcroft’s request on Friday. Ashcroft’s office would not detail why she was removed or when her replacement would be named.

Stanley said she was unaware of why she was removed from her post — representing the Region 17 district of northern and eastern California and Nevada for the Dept. of Justice — far in advance of the end of her second five-year term on June 26, 2004.

A spokeswoman for the U.S. Bankruptcy Court said Stanley’s departure will not likely impact the ongoing Pacific Gas & Electric case — the largest utility bankruptcy in history with $ 13-billion in creditor claims — given that the trustee’s office is represented by its trial attorney, Stephen Johnson, and not Stanley herself.

PG&E would not comment on Stanley’s departure while the PUC‘s Cohen said Thursday that her departure would not affect the ongoing PG&E case unless Stanley’s successor removes Johnson from his position.

Stanley had played a key role in the PG&E bankruptcy case as a DOJ agent empowered to appoint the unsecured creditors committee and to act as a watchdog scrutinizing bankruptcy documents. Early in the case, her office had unsuccessfully tried to get the court to create a ratepayers’ committee based on the impact of the utility’s reorganization on its customers.

The Utility Reform Network suggested that Stanley’s removal was due to the pro-consumer stances taken by her office. ”Linda Stanley went out on a limb to insist that consumers had a right to representation in the bankruptcy proceeding and to question the outrageous legal costs PG&E is racking up,” the consumer group said in a statement. ”Without knowing of any other reason for her firing, it certainly appears to be a political move that will benefit PG&E at consumers’ expense. We hope this isn’t payback for her standing up for ratepayers.”

As PG&E continues its struggle to be financially stable by year-end, the PUC looks like it will remain intact with all existing five commissioners to decide on a key order this year pertaining to the utility’s ongoing power procurement abilities.

The First District Court of Appeal on June 21 ruled that PUC Commissioner Henry Duque could remain in his post until it decides on the legality of a lower state court ruling removing him over violations of state conflict of interest laws, according to his lawyer Tom Willis on Tuesday. Willis expected that a court decision would be out by year-end, making it likely that Duque will be able to serve out his term, which ends in December, regardless of what the court decides.

The appellate court’s ruling did not limit Duque’s role in any way so he can continue to attend meetings and vote on orders as a typical commissioner, Willis said. He expected that the court will begin taking oral arguments on the appeal starting next month.

The Foundation for Taxpayer and Consumer Rights last year had filed its case against Duque to the San Francisco Superior Court after the consumer group learned the only Republican commissioner on the PUC had owned in 1999 shares of Nextel, a PUC-regulated telecommunications company.  

Consumer Watchdog
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