Creditors set to vote on PG&E’s new form

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They are faced with two proposals for how the company should emerge from bankruptcy protection

The Sacramento Bee

For the past 14 months the powerful have held the stage – the banks and energy companies, the Wall Street lawyers and Harvard law professors.

On Monday, the spotlight in the Pacific Gas and Electric bankruptcy court case turns to a broader mix of folks – 74,000 creditors who have been quietly holding the bag since PG&E, showing $13 billion in debts, filed for bankruptcy protection in April 2001. They include tree trimmers and gizmo salespeople, caterers and consultants.

Ballots will be mailed to them Monday, inviting a vote by Aug. 9 on two competing plans for pulling California’s largest utility out of bankruptcy protection. The creditors will vote each reorganization plan up or down and also will be asked to state a preference in case both survive this important test.

The differences between the proposals – one written by the utility and its parent corporation, the other by the state Public Utilities Commission – are great. But despite the 600 pages of explanation that will be mailed with each ballot, a creditor will find no clear guidance.

A consumer organization that closely monitors utility rate issues calls the PG&E plan “the root of all evil” and doesn’t like the commission’s plan either, even though the organization previously threw in its lot with the PUC.

“We’d like to see PG&E take care of its own debts instead of ratepayers having to pay,” as they would under both plans but “certainly much more so under the PG&E plan,” said Mike Florio, senior attorney at The Utility Reform Network (TURN).

Because TURN is owed money by PG&E from past rate proceedings, the organization can cast one vote as a creditor.

“I don’t think we’ve actually decided how we’re going to vote,” Florio said.

On the other hand, the official creditors committee, which originally was planted firmly on PG&E‘s side, now recommends that creditors vote yes on both plans but says it’s “not at this time in a position to recommend a preference for either plan.”

From a creditor’s viewpoint, the chief drawback of the PG&E plan is the long, perilous legal road it would have to travel through the courts and federal regulatory agencies before it could be implemented.

Under the proposal, the utility would be broken up, shifting its generation and transmission facilities outside the reach of state regulators. The state and PUC are fighting the move.

But the competing PUC proposal does not guarantee the utility a stable flow of sufficient rate revenues, says the committee. That may not sit well with credit rating agencies and others in the financial world, who could sink the plan.

The PUC has been wooing Wall Street, though, and late last week the commission’s bankruptcy expert, Alan Kornberg, predicted “some significant development in connection with our financing efforts in the very near future.”

As the balloting is structured in all Chapter 11 cases, the creditors vote within certain standard classes – 11 classes for the PG&E reorganization plan and eight for the PUC plan. Most classes consist of various types of securities holders or power providers.

Each eligible class is deemed to have approved a reorganization plan if yes votes are returned by at least half the creditors within that class, holding at least two-thirds of the debt.

The classes range from thousands of creditors, as in holders of “general unsecured claims,” to just one.

The only eligible voter in the class of “common stock equity interests” is PG&E Corp. – the utility’s parent and the co-proponent of its reorganization plan. The corporation owns all of the utility’s common stock.

Under the PUC‘s proposal, additional shares of common stock would be issued, diluting the value of the corporation’s investment.

Utility spokesman Ron Low said “it’s possible” the corporation will not vote in favor of the commission’s plan. No state agency has corresponding voting clout.

But authorization by all classes isn’t necessary for a plan to survive. If just one class accepts it, U.S. Bankruptcy Judge Dennis Montali can force it on the others by making a judicial determination that it’s fair to them.

At hearings set for the fall, Montali also will decide whether the plans are feasible and legal.

The biggest hurdle for PG&E will be convincing Montali that circumvention of state rate and environmental regulations is an economic necessity.

The PUC plan also has legal hurdles to cross, including a threatened PG&E suit to prevent dilution of the corporation’s stock.

Another opponent of the PUC plan already has sued to block it. The Foundation for Taxpayer and Consumer Rights claims the plan involves a secret, illegal deal to raise utility rates.

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The Bee’s Claire Cooper can be reached at (415) 551-7701 or [email protected].

Consumer Watchdog
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