Despite howls of protest from California officials and consumer groups, the head of PG&E Corp. said this week he is very confident that the reorganization plan the company submitted in bankruptcy court last week will be enacted.
In a gathering with reporters Wednesday, Bob Glynn, chairman, president and chief executive officer of PG&E Corp., expressed conviction that the plan will withstand state legal challenges and regulatory review.
The biggest threat to the plan, said Glynn, was a protracted approval process from the Federal Energy Regulatory Commission.
PG&E‘s aggressive timeline for the reorganization calls for the company to be back on sound financial footing by 2003. But that deadline could be pushed back if FERC decides to hold evidentiary hearings or if appeals are filed against FERC approval of the plan.
“The time delay for having this plan happen is the most significant risk. I think we have the other ones bracketed pretty well,” he said. “Of the things that are not controllable by our company, I think that the risk that someone would choose to try to slow down the FERC process is probably the biggest one.”
But Glynn said the worst-case scenario for a delayed FERC approval could still be resolved within a matter of months, not years. “I don’t think we’re pushing FERC anywhere near the edges of either their policy direction or their rules. And frankly I feel the same way about the bankruptcy court.”
Aside from federal approvals, the plan is likely to be challenged by the state. California’s governor and attorney general hinted they may attack the restructuring plan based on a state law that prevents the sale of a utility’s power generation assets before 2006. The state is also not pleased with the notion that generation assets would be removed from the oversight of state regulators.
“I have not represented to any elected official in the state-and I have spoken to many, including the governor-that they will fall in love with every element of the plan,” Glynn acknowledged. “But what I have said is, taken as a whole, to solve the problem that’s in front of us, this plan does it better than the alternatives.”
Under the proposed reorganization, PG&E would spin off its state-regulated utility, Pacific Gas & Electric Co., and transfer generation, natural gas and electricity transmission businesses to the existing holding company-effectively taking them out from state oversight and putting them under federal regulation.
“PG&E is asserting that a bankruptcy judge can in effect nullify a state law,” Gov. Gray Davis (D) said. “I signed a bill requiring all of the utility assets to be made available to ratepayers on a cost-of-service basis for five years. This bankruptcy scheme takes those assets out from under a regulated umbrella puts them under an unregulated umbrella. That will obviously be challenged in court.
“PG&E is hoping that the state will give way to the bankruptcy decision. The state will take the position: the state law is a state law and it should not be abrogated.”
But Glynn said the bankruptcy court has broad powers to supersede state laws. “In most Chapter 11 reorganizations, the court does use that authority that they’re granted to override or supersede some otherwise applicable state or local laws…,” he stated. “We picked a venue where this is the rule….I have a very high degree of confidence that we’re asking the bankruptcy court to do things that it would normally do in a course of reorganizing companies.”
Davis also has expressed unease with the notion that PG&E‘s assets would no longer be subject to the ratemaking powers of state regulators, but instead move to a long-term contract under the oversight of the federal government.
“The Federal Energy Regulatory Commission has proven over the last 18 months to be, in most cases, no friend of the ratepayer,” said Davis. “Their universe [is] generators and utilities. The last thing that comes to their mind in most cases are the ratepayer[s]. The [California Public Utilities Commission], while far from perfect, has been a stronger advocate for ratepayers than [FERC].”
And Attorney General Bill Lockyer (D), said Monday he is “looking closely at the PG&E reorganization plan because of serious concerns that the utility is seeking to evade further scrutiny by the California Public Utilities Commission and is seeking to avoid state laws that apply to their transfer of assets.”
But Glynn argued FERC market-based regulation was key to getting the company the financing it needs to survive. “They have to recognize that no one is going to lend $2.5 billion to a generation company that is regulated by the CPUC,” he said.
Consumer groups were also unhappy with the asset transfer, warning that ratepayers would end up paying higher prices under the reorganization plan.
The Foundation for Taxpayer & Consumer Rights (FTCR) compared PG&E‘s plan to a Greek tragedy. “The executives at PG&E clearly have an Oedipal complex, in which the child (the PG&E holding corporation formed in 1996) wants to kill its father (the century-old utility) and impregnate its sister (the unregulated affiliates) with new power plants…,” FTCR said last week.
“In the name of paying off the gougers, PG&E wants to become one,” said Nettie Hoge, executive director the Utility Reform Network (TURN). “Under this plan they would basically be stealing the generation assets, which ratepayers would not be compensated for. Rates would certainly go up, because after snatching the assets, PG&E Corp. would sell us back the electricity at inflated rates.”
TURN said the new 12-year power contract, under which the unregulated generation company would sell power to the utility at an average of 5 cents per kilowatt-hour, would be a significant increase from 2.8 cents, the present cost-of-service rate.
But Glynn argued that even under CPUC regulation, the company requested cost-based rates of “a little higher than a nickel”-a rate that included the recovery of $4 billion in debt. “The folks who say it only costs 2 cents are only looking at the cash operating costs for the business, they’re not looking at the costs for owning the thing,” he responded. “It’s like asking Hertz to rent you a car just for the price of the gas, ignoring the value of the car.”