BCD News and Comment

Bankruptcy Judge Dennis Montali (N.D. Calif.) has approved the disclosure statement of Pacific Gas & Electric Corp., but the utility company’s biggest challenge lies in a competing alternative reorganization plan filed in April by the California Public Utilities Commission.

In February, Montali cleared the way for the CPUC to file the plan. In response, the Foundation for Taxpayers and Consumer Rights claimed the CPUC did not have the authority to do so.

After the CPUC filed its alternative plan, it told the California Supreme Court the FTCR charge should be dismissed because the commission planned to hold public hearings and give parties an opportunity to challenge its alternative plan. While the commission did just that on April 22, attorneys for PG&E indicated to the court that it believes many inconsistencies need to be resolved before the CPUC’s alternative plan can be allowed to move forward.

According to the CPUC, its plan would allow all creditors to receive payment of their claims in full, with interest, and PG&E would be restored to investment grade upon emergence from Chapter 11, enabling it to resume meeting the full power needs of its customers. They claim the customers will suffer no rate increase and PG&E‘s shareholders will bear a significant portion of the burden of returning PG&E to financial health.

The CPUC’s plan is funded in part through the sale of 1.75 billion in PG&E stock, thereby diluting PG&E Corp.’s ownership interest in the utility. In addition, 1.6 billion of earnings, which would have been received by PG&E Corp. from the utility during 2001, 2002 and January 2003, will remain with PG&E and be used to repay creditor claims.

In response, PG&E representatives have said that the CPUC’s estimates are off by millions of dollars and it is likely that under the CPUC plan the company will not survive.