BANKRUPTCY JUDGE WILL HAVE FINAL SAY ON STRATEGY TO PAY CREDITORS IN FULL
Contra Costa Times
SACRAMENTO — A plan to restore bankrupt PG&E to fiscal health would transfer its power plants to its parent corporation, a move that worries state officials who would no longer be able to regulate a potentially cheap energy source.
The reorganization plan, announced Thursday, would also pay off PG&E‘s $13.2 billion in debts and avoid the unsavory prospect of electricity rate increases or layoffs, the company’s executives said.
Pacific Gas & Electric Co.’s creditors endorsed the plan, and it’s up to a bankruptcy judge to decide whether to accept it or to request changes.
Gov. Gray Davis, who chastised PG&E last spring for seeking bankruptcy instead of negotiating for the state to buy some of its assets, said he is glad that the company’s executives don’t foresee layoffs.
“I am troubled, however, that this plan transfers more power to the federal government, which, during the last 18 months, has by and large treated California ratepayers shabbily,” he said.
The governor issued the statement after meeting Thursday with Robert Glynn, the chief executive officer and president of PG&E Corp., the utility’s parent company.
Spokesmen for energy generators and California businesses praised the plan, while state legislative leaders and environmentalists reacted with caution. Consumer advocates derided the plan as a way to enrich the parent corporation.
Under reorganization, the utility would transfer its power production, electricity lines and natural gas pipelines to PG&E Corp., which would create three new companies to manage each group of assets. PG&E, as reorganized, would retain 70 percent of its current assets and employ 16,000 people.
By taking the power plants, the corporation could avoid state regulation and charge prices prevailing on the wholesale electricity market, said Doug Heller, a spokesman for the Foundation for Taxpayers and Consumer Rights. Those prices run far higher than the cost-based rates state regulators can demand from PG&E.
“The parent company bails out the utility with cash, just as we have said it could and should, but in exchange tries to steal power plants to enable the parent company to rip off the people of California once more,” Heller said.
The state’s chief regulator said the utility cannot transfer generating facilities to its parent corporation without Public Utilities Commission approval. The commission could allow the transfer only if it determines the move is in the public’s interest, said Loretta Lynch, president of the PUC.
Ever since wholesale electricity prices skyrocketed last year, state regulators have looked at the power plants still owned by California’s utility companies as a source of relatively cheap power. In January, lawmakers passed legislation requiring the utility companies to keep the generating facilities while the state navigated its way out of an energy crisis.
Senate President Pro Tem John Burton, D-San Francisco, said he would call legislative hearings to explore “what this all means,” in particular the power plants transfer.
Assembly Speaker Bob Hertzberg, D-Van Nuys, will study the proposal, too, said his spokesman Paul Hefner. He is a strong proponent of legislation to rescue the state’s second-largest utility, Southern California Edison, from financial distress.
Members of a Berkeley-based environmental coalition said removing the utility’s control over a vast network of hydroelectric dams and tens of thousands of acres of Sierra land could hurt state waterways.
“We’re concerned that changing ownership and rates will result in new operating incentives for the hydro facilities,” said James Honey, a member of the California Hydropower Reform Coalition. “Changed operations could increase impacts to our state’s already strained rivers.”
A PUC-commissioned report concluded that the health of rivers, land and wildlife in those watersheds would be better off if the utility retained them.
Lawmakers originally had worried that the bankruptcy would result in higher electricity rates for PG&E‘s customers or the selling of company’s power plants to out-of-state generators.
Neither would happen under the plan, and in addition, the reorganized utility would relieve the state of the troublesome burden of buying power for one-third of the PG&E‘s customers.
Businesses and energy generators embraced the proposal.
“This plan will allow the company to continue to deliver safe, reliable power at reasonable prices for years to come,” said Allan Zaremberg, the president of the California Chamber of Commerce.
The plan is “creative, credible and responsible” said Jan Smutny-Jones, executive director of the trade association Independent Energy Producers.
Glynn, the parent corporation’s leader, said the plan is a big step in the right direction.
“With this plan filed, we are now focused on bringing the Chapter 11 process to completion, reaffirming the financial health and creditworthiness of our operations restoring customers’ confidence and rebuilding value for our shareholders.”
Nevertheless, PG&E spokesman Jon Tremayne said the company does not plan to drop its federal court lawsuit seeking $8.3 billion from electricity customers. The outcome of the case would not affect the reorganization plan, he said.
“If we’re unsuccessful, our shareholders have already written that off,” Tremayne said.