Federal judge announces compromise in PG&E bankruptcy

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Associated Press

SAN FRANCISCO — A compromise deal that would lift the bankrupt Pacific Gas and Electric Co. out of insolvency is drawing criticism for being too lenient on the state’s largest utility.

Crafted in confidential negotiations and unveiled by a federal bankruptcy judge Thursday, the proposed reorganization plan will allow creditors of PG&E to be paid in full; lower electricity rates starting next year; and end lawsuits between PG&E and state regulators.

But it immediately drew fire from consumer groups and Gov. Gray Davis, who said he’d oppose any deal that didn’t provide larger rate cuts for the company’s 4.6 million customers.

PG&E‘s shareholders must bear a much greater share of the burden,” Davis said.

The utility has been tussling with state regulators over opposing plans that would let it emerge from the bankruptcy protection it sought in April 2001 amid the state’s energy crisis.

Before it goes into effect, the compromise plan must go through what will surely be a contentious public hearing process and gain approval from the five-member PUC, PG&E‘s board of directors and the bankruptcy court.

If the plan is adopted, PG&E customers could see their rates fall in January by a half-cent per kilowatt hour – a monthly savings of about $3.50 off of an average $70 monthly residential bill, said Paul Clanon, director of the Public Utilities Commission‘s energy division.

At the same time, prices must stay high enough to allow PG&E to recover its fiscal health., he said.

PG&E owes $11.5 billion to thousands of creditors. Under the proposal, it would pay $3.2 billion in cash raised when the state increased rates as the lights went out in 2001, and borrow the balance. The company would emerge from bankruptcy, as early as next year, only after credit-rating agencies give its bonds investment-grade status.

The proposal would also keep the utility intact and under PUC oversight, contrary to the corporation’s desire to break it into four subsidiaries. Shareholders, who have forgone dividend payments since January 2001, will continue to do so until July 2004. Altogether, the missed dividends will total $1.7 million, PG&E said.

More details about the plan are expected to be filed with the court next week and officials from all sides were short of details Thursday.

Noting that the PUC increased rates about 30 percent in 2001 as the utility struggled to pay record-high wholesale electricity costs, Davis, who appointed all five PUC commissioners, called the proposed settlement “too expensive for the ratepayers.”

Along with the PUC and PG&E, the utility’s creditors will have to approve the plan. Paul Aronzon, a lawyer for unsecured creditors, enthusiastically endorsed the plan.

But Nettie Hoge, executive director of The Utility Reform Network, estimated that the plan could cost consumers $8.8 billion over the next nine years.

“The commission protected its jurisdiction. PG&E protected its pocketbook and ratepayers are paying for everybody to do that,” she said.

Another consumer group, the Foundation for Taxpayer and Consumer Rights, called the proposal a bailout.

“This may be a great deal for PG&E and its creditors but it is funded out of the pockets of California consumers,” said Doug Heller, a senior consumer advocate with the foundation.

But Judge Randall J. Newsome, who brokered the deal over three months, said a settlement would restore PG&E to financial health long before a bankruptcy trial would end.

The two sides “were dug into their positions, and I think it’s fair to say that neither side held out much hope for achieving a settlement,” the judge said.

In April 2002, PG&E offered a plan which would let it transfer billions of dollars worth of transmission lines, pipelines and other assets into new federally regulated companies, then borrow against those assets to pay its debts.

The PUC countered with its own plan, insisting that current rates were high enough to handle paying off tens of billions of dollars worth of bonds, long-term energy contracts and past energy debts.

A trial on the merits of the competing plans began in November 2002. By March, the trial judge had asked Newsome to oversee settlement talks.

“Everyone recognized that further delay in resolving this case almost surely would have had devastating consequences not only for PG&E, but also for the health, safety and welfare of the citizens of California,” Newsome said. He called the negotiations the most difficult he’d overseen during 21 years on the bench.
Associated Press Writer Jennifer Coleman in Sacramento contributed to this report.

Read the settlement agreement: http://www.solem.com/cpucpgesettlement.pdf

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