Sacramento Bee

With the Pacific Gas and Electric Co.’s fate in the hands of a federal bankruptcy judge, state officials acknowledged Friday they have largely lost what power they had over the ultimate outcome of California’s energy crisis.

“Right now, we’ve lost control of any ability to solve the problem ourselves,” said state Sen. Debra Bowen, D-Marina del Rey, chairwoman of the Senate energy committee. “Whatever we do now needs to have approval of the creditor committees. The table just got a whole lot bigger.”

PG&E rejected Gov. Gray Davis‘ televised proposal to raise rates to help retire utilities’ debt in dramatic fashion Friday morning, filing for bankruptcy protection and issuing a statement that said its negotiations with the state were “going nowhere.”

Davis administration officials said late Friday they may ask the court to order the utility to continue negotiating with the state for the sale of the utility’s power transmission lines to reduce the company’s multibillion-dollar debt.

And the Democratic governor said he would continue to negotiate with Southern California Edison to purchase its share of the transmission grid.

But several lawmakers and others saw the court filing as a potentially positive development, one that could bring order to a process that had become increasingly chaotic in recent weeks.

Senate President Pro Tem John Burton said the “bankruptcy court may be the fairest, most stable venue for dealing with the back debt issue.”

Now “there’s no need for the state to be taking steps toward a bailout,” said Burton, D-San Francisco. “Let them work it out at their own pace in the venue they chose.”

State Treasurer Phil Angelides said the Chapter 11 filing limits the state’s options, but in the long run will boost the prospects for a public power authority, which he supports, and help PG&E reorganize its debts without the ratepayers’ help.

“I’ve always thought it was odd that we should be so anxious to have the ratepayers make sure the utilities got enough money to pay the generators 100 percent of their outrageous prices,” he said.

Angelides said the filing “does reinforce the notion that you’re always better to control your own energy destiny. … This whole situation should remind people that we need to view energy as a necessity, not just as a commodity to be be traded on some marketeer’s screen each day.”

Angelides’ effort to secure a $5 billion to $6 billion bridge loan for the state’s power purchases, meanwhile, will move forward, he said.

“We’re assessing with our attorneys what impact, if any, the filing will have on our ability to get the bridge loan done. Maybe there’s been a couple more hurdles on the track, maybe not. Our job is to clear them,” he said.

One obstacle emerged after the bankruptcy filing, as Moody’s investor service lowered the outlook on the state’s bond rating from stable to negative. It said the action “has increased the risks to the state’s otherwise strong fiscal and economic condition.”

Administration officials believe the law requires PG&E to continue to pay the state the estimated $3 million a day the company collects in retail rates from its electricity customers for power the state has purchased. The PG&E payments have been made regularly every 45 days, so the company never owes the state more than $135 million at a time, said Department of Finance spokesman Sandy Harrison.

The bulk of the state’s electricity purchases – reportedly $50 million to $60 million a day for all three troubled utilities – are not covered by the current rate structure.

Attorney General Bill Lockyer issued a call to the public to help his investigation into whether energy generators are guilty of illegally manipulating California’s electricity or gas market.

“Since billions of state dollars may be recovered, the award to an informant could potentially range from $50 million to the hundreds of millions of dollars,” Lockyer said.

Lawyers for Davis and Lockyer are meeting through the weekend to determine the state’s next legal move. One path under discussion, said Davis spokesman Steve Maviglio, would be to seek a court order requiring PG&E to return to the negotiating table.

Maviglio said those negotiations have been difficult but said the company’s characterization of them as going nowhere was “not an accurate portrayal.”

“We always wanted to work this out across the table, but we aren’t willing to let the utilities run roughshod over the ratepayers,” Maviglio said.

But Matt Freedman, a staff attorney for The Utility Reform Network, warned that the bankruptcy filing could be as a “strategic ploy to force the governor and the Legislature to capitulate to their demands.” He said the biggest mistake the state could make would be to yield in the face of bankruptcy by overpaying in a negotiating process.

“I believe that PG&E is petitioning for bankruptcy to force an expedited negotiation that may come out in their favor,” he said. “They are unsatisfied with the deals that have been offered so far, so they’re trying to ratchet up the consequences.”

Without a court order, Maviglio acknowledged, negotiations between the state and PG&E are “pretty much” ended.

Harvey Rosenfield of the Foundation for Taxpayers and Consumer Rights said the state’s work to date on the transmission-line deal and proposed rate changes is virtually “all wiped away” and will have to begin again in the legal arena.

But he said bankruptcy may be better in the long run for both utilities and consumers.

“It’s not going to be subject to political shenanigans,” he said. “It’s not something that’s going to be kicked around the Legislature behind closed doors with all sorts of numbers that don’t add up. It’s going to be done in a courtroom with representatives of all interested parties.

“We’re all going to see the numbers, and we’re all going to know what’s going on.”

In some ways, Rosenfield said, state officials may be relieved to have the weight of the problem off their backs.

“Bankruptcy is a process that is designed to bring order and protection to companies that run into trouble,” he said. “There is bankruptcy so there is not chaos – so there is not what we’ve had in the last four weeks.”