Contra Costa Times
WALNUT CREEK, Calif. _ PG&E Corp. used part of a $1 billion loan, which closed Friday, to pay a $116 million dividend to stockholders, even as state taxpayers continued to pick up the tab to buy the electricity needed by its utility subsidiary.
Since mid-January the state has run up a $2 billion electricity tab _ an amount equal to about one- sixth of California’s budget reserves. The state continues to buy electricity at a clip of about $55 million a day.
Meanwhile, PG&E apparently has given the green light for its utility to sell transmission lines to the state, which means Gov. Gray Davis has cleared a major obstacle in getting an agreement to bail out the utility.
Any tentative agreement is still at least a week away from being announced and might be more, officials said.
The corporation, which is a parent to the Pacific Gas & Electric Co., the utility serving Northern California, swung the new $1 billion loan by using the assets of a financially healthy subsidiary as security. The money was used to pay back defaulted loans and dividends that were declared last fall.
“It addresses all of the debt and obligations of the holding company,” said PG&E Corp. spokesman Brian Hertzog.
The move effectively removes the threat of bankruptcy from the parent company, according to PG&E, but it does nothing to resolve the utility’s financial crisis.
Consumer activists were angered.
“We always said they could bail themselves out,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights. “They just proved it. Why should the ratepayers pay them a dime?”
A utilities analyst at Fitch Investor Service said the loan agreement, combined with the fact PG&E is working with one of the best bankruptcy lawyers in the country, is an ominous sign for the utility.
“That tells us the action is being taken to further remove the parent holding company and its unregulated operations from the utility subsidiary, leading us to believe they may be a step closer to bankruptcy at the utility,” Fitch analyst Lori R. Woodland told Bloomberg News.
Asked about the possibility that a similar loan package could be worked out to save the utility, Hertzog said it would be “inappropriate” to commit assets from a separated subsidiary to save the utility. He said it was unlikely that the utility could get a loan without that security.
“I don’t think actually that any bank is going to step in and do that,” Hertzog said.
Lynn LoPucki, a UCLA law professor and bankruptcy expert, said that one effect of PG&E Corp.’s use of the refinancing money to pay a dividend was to peel off and give to shareholders a small portion of the assets that might otherwise be sought after for disposal in a bankruptcy proceeding.
For creditors of the utility, the effect might be similar to seeing someone who owes you a hundred dollars hand a dollar bill to a panhandler.
While the impact of Friday’s action might be minimal in terms of the dollars currently at stake, it would not be unusual for a company with such large debts and facing bankruptcy to attempt to move away assets a tiny bit at a time, LoPucki said.
One possible benefit to PG&E would be the boost that paying a dividend might give to its stock price by improving the psychology of its investors, he said. If effective, that could allow PG&E to seek a higher price in the sale of its remaining assets, such as the transmission lines, he said.
The immediate practical effect of the transaction was to substitute one creditor_GE Capital, which specializes in the acquisition of distressed properties_for the banks who have probably tired of holding PG&E‘s defaulted or now-risky obligations, LoPucki said.
In addition, the utility this week filed documents with state regulators arguing that the state should receive no reimbursement from PG&E‘s bill collections. Instead, the company says that a formula contained in the state law that authorized the Department of Water Resources to get into the power buying business says the state is entitled only to customers’ money left over after PG&E‘s costs are paid off.
“There would not be any money left over for (state reimbursement),” said PG&E spokesman Ron Low.
According to reports this week, PG&E Corp. has withdrawn its opposition to the sale of the utility’s transmission lines, a concession that CEO Robert Glynn recently described to reporters as being, “like asking Safeway to give up selling milk, bread or butter.”
The transfer of 26,000 miles of transmission lines owned by the state’s three utilities is a key part of Davis’ strategy to spare them from bankruptcy. In exchange for billions of dollars to restore their broken finances, the governor wants the utilities to hand over transmission lines, development rights on some land and drop lawsuits that seek payment for the billions of dollars they have lost in electricity costs since last summer.
PG&E officials and Davis’ spokesman Steve Maviglio refused to confirm reports that the company might now be willing to part with the transmission system. Maviglio said any announcement from the governor about a possible deal could come, “next week at the earliest.”
“It would be inappropriate for us to comment on the status of negotiations with the governor at this time,” said PG&E spokesman Low.