LARGE CREDITORS SIDE WITH STATE REGULATORS IN DISPUTE OVER BANKRUPTCY

The San Jose Mercury News

Embattled PG&E Corp. lost some ground Thursday as creditors of its bankrupt utility announced they were siding with state power regulators against the corporation’s plan to break up its utility and wrest it from state control.

In their joint announcement Thursday, the committee of some of the largest creditors in the bankruptcy and the California Public Utilities Commission said they are teaming up to revise the PUC‘s rival plan for extricating the utility from Chapter 11 bankruptcy.

They said they will ask U.S. Bankruptcy Judge Dennis Montali to have all 74,000 PG&E creditors vote again on which of two bankruptcy reorganization plans they want — the PUC‘s modified plan or PG&E‘s. Voting on the original two plans ended Aug. 12, but no results have been announced.

The new allies — the creditors’ committee and the PUC — are proposing two main changes to the PUC‘s original fix-it plan. One, they recommend issuing preferred stock instead of common stock to help raise bail-out money, addressing concerns about diluting PG&E‘s already weakened shares.

Two, they propose including explicit language in the plan to assure Wall Street that the electricity rates the utility charges customers will cover its operating costs and debt obligations. The idea that money from rates would go to paying off the billions of dollars Pacific Gas & Electric Co. owes creditors was implicit, but not spelled out, in the PUC‘s original plan.

Paul Aronzon, lead counsel for the Official Committee of Unsecured Creditors, said this clarity was a key requirement for the PUC plan to fly on Wall Street — and to get the committee’s full backing.

“We will recommend creditors vote yes on the PUC plan and that they prefer the PUC plan with these changes and modifications,” Aronzon said.

The committee originally urged creditors to vote yes for both plans issued by PG&E and the PUC, thus punting the decision to the bankruptcy judge.

PG&E said it needs to study the proposed changes. The company reiterated its stand that only its own plan will return Pacific Gas & Electric to investment grade.

“The CPUC’s announcement today, weeks after the voting period ended, underscores the fact that its current plan is not feasible and cannot be confirmed,” the company said in a statement issued Thursday.

The language in the revised PUC creditors’ plan regarding customers’ utility rates angered consumer advocates. They have argued that it is not legal for money from ratepayers to be used to finance the fix-it plan. The advocates contend that California law says ratepayers are not responsible for debts that the utilities incur as a result of deregulation. Electricity rates were raised during the state’s power crisis, and California customers currently pay some of the highest electricity rates in the country.

The Foundation for Taxpayer and Consumer Rights in Santa Monica vowed to file another lawsuit against the PUC over this issue. The consumer group lost an earlier one it filed against the PUC in the California Supreme Court.

“They are illegally keeping these rates at astronomical levels to pay off these debts,” said Harvey Rosenfield, president of the foundation. “This is a renegade state agency that has repeatedly raped the ratepayers of the state.”

Gary Cohen, general counsel for the PUC, said he still anticipates a decrease in electricity rates after the utility emerges from bankruptcy. But that depends, he said, on various other issues such as the cost of natural gas.

“If things stay the same in terms of those other elements, then the answer is no, there should not have to be any rate hike,” he said.

The creditors’ committee move on the bankruptcy plan comes as parent PG&E struggles to renegotiate a $1 billion loan provision.

The loan terms require PG&E‘s other subsidiary, deregulated National Energy Group, to maintain a top-tier credit rating. But a major Wall Street credit judge downgraded the rating on that subsidiary to junk earlier this month — a move that means PG&E must repay or restructure more than $1 billion in debt or default on the loans, raising the specter of another bankruptcy.

The lenders have given PG&E until Oct. 21 to fix the problem.

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Contact Jennifer Bjorhus at [email protected] or (408) 920-5660.