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Electric Utility Week (formerly Electrical Week)

Pacific Gas & Electric stockholders will ”bear a significant portion of the burden” of returning the utility to solvency under the alternative reorganization plan filed at the U.S. Bankruptcy Court in San Francisco April 15 by the California Public Utilities Commission.

Under the PUC plan, shareholders would contribute $ 3.35-billion in capital. Of that, $ 1.75-billion would come from the sale of PG&E common stock and $ 1.6-billion from foregone profits from 2001 to January 2003. ”PG&E‘s shareholders will bear a significant portion of the burden of returning PG&E to financial health,” the commission said.

But the PUC maintains that its plan ”provides full payment of debts in cash to creditors sooner than under PG&E‘s plan,” and ”avoids a lengthy state jurisdiction battle and related litigation that would result from PG&E‘s illegal plan.” The commission argues that its plan ”is the best alternative for California’s ratepayers, economy, and environment.”

Creditor claims total about $ 13.5-billion, which the PUC said will be paid through a combination of $ 3.6-billion in projected cash, $ 3.9-billion from the sale of new debt, the common stock sale and $ 4.3-billion in reinstatement of long-term debt. The PUC plan would not raise rates and could even bring a rate decrease in 2003, said PUC General Counsel Gary Cohen at a press conference. Since the utility would return to cost-of-service ratemaking after paying its creditors, its rates could decrease to reflect a lower cost of buying power, he said.

Cohen said that the PUC has been in general talks with rating agencies about what it would take to regain PG&E‘s creditworthy status. So far the agencies have not offered an opinion on the commission’s plan but Cohen expects it will meet their standards given its quick resolution of debt and its avoidance of the volatile spot market by returning to historical cost-based ratemaking. The PUC has also been meeting with equity analysts to determine how a utility stock sale would be most successful. ”I am confident that there will be a market for the stock,” Cohen said.

The commission has vehemently opposed the reorganization plan filed by PG&E because it would move many of the company’s natural gas and electric assets from state regulation to Federal Energy Regulatory Commission jurisdiction. The commission has gone so far as to call PG&E‘s scheme a ”regulatory jailbreak.”

For its part, PG&E argued that the PUC‘s plan cannot be confirmed or implemented. ”More than a year late, the Commission finally recognizes the need to have investment grade utility companies so that the state can exit the procurement business,” it said in a statement. ”Yet their plan makes none of the fundamental regulatory commitments needed to achieve or assure investment grade status.”

PG&E also said the PUC‘s plan would prompt ”substantial litigation” because it illegally seeks to eliminate any return on equity. ”The proposed equity sale violates the rights of shareholders,” it said. ”It also would greatly harm tens of thousands of our employees and retirees whose 401(k) accounts, and retirement plans include significant amounts of PG&E stock.”

PG&E and the PUC have been trying to work out a mediated solution, as mandated by the bankruptcy court, but have failed to reach agreement. An April 11 lawsuit filed by consumer group The Foundation for Taxpayer and Consumer Rights may factor in what weight the PUC may have in the talks and in the court with its plan.

The lawsuit challenges the PUC‘s authority to reach court-sanctioned wholesale power-debt recovery deals with utilities and may jeopardize the commission’s plans to successfully see approval of its alternative plan, Cohen warned in an April 12 statement.

Cohen said the FTCR lawsuit lacks merit and predicted that the court would deny the group’s request because the Legislature last year adopted bills that returned utilities to cost-of-service regulation, requiring the PUC ”to adopt rates that enable the utilities to recover their costs of generation.”

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