Regulators Present Their Proposal, But The Bankrupt Utility Quickly Dismisses It As “Illegal”
The Contra Costa Times
SAN FRANCISCO: California regulators presented a plan Monday that would force PG&E Corp. to raise money to pay its utility creditors by selling outsiders a $1.75 billion stake in its crown jewel, the nation’s largest regulated utility.
Alan Kornberg, lawyer for the California Public Utilities Commission, said that its plan would “avoid years and years and millions of dollars of litigation” that would result from the PUC‘s promised challenge to PG&E‘s competing plan.
PG&E wants to raise money for creditors by ending state regulators’ power to set some rates for electricity. Both sides are rushing to spell out their plans to meet a bankruptcy court’s judge goal to present details to creditors in a June 17 mailing.
PG&E immediately dismissed the PUC‘s approach, which also calls for the utility to raise $1.6 billion by suspending dividend payments and $3.9 billion by selling bonds that would be repaid by electricity users. “We believe the CPUC’s plan could not be confirmed or implemented,” PG&E said in a release.
PG&E has promised that its plan won’t hike retail electricity rates. On Monday, the PUC engaged in a little one-upmanship. “Based on our projections, it should be possible for rates to go down after January 2003,” said General Counsel Gary Cohen. Consumer advocates remained skeptical about the impact of both plans.
PG&E sought bankruptcy for its utility a year ago after it accumulated $14 billion in unpaid bills during the state’s energy crisis. Although lower wholesale power costs and an economic slowdown ended the crisis, the huge bankruptcy case has evolved into a stalemate between PG&E and regulators.
The PUC‘s latest move aimed to put the squeeze on PG&E‘s owners and managers, and get them to end their uncompromising pursuit of their own plan. “PG&E will be unhappy” at the prospect of selling a utility stake to outside investors, Cohen said in an interview.
Three of the five members of the PUC attended a midday news conference. Cohen and Commissioner Michael Peevey stressed that they were anxious to continue talking with PG&E to reach a compromise.
But Lynn LoPucki, a bankruptcy expert at UCLA Law School, said that the conflicting plans could be the harbinger of “a very long bankruptcy case,” especially since both could face significant court challenges.
On Monday, both sides expressed little inclination to beat their lawsuits into plowshares. Cohen said that the “PG&E plan is illegal, and it’s never going to happen.”
PG&E responded in kind, noting that the PUC‘s proposal to ban dividend payments until 2003 “violates federal and state law and would prompt substantial litigation.” It also objected to the proposed equity sale, which the PUC did not explain in detail. Whether a sale could be designed to return a fair value could be a key issue, LoPucki said.
Cohen predicted a warm response to the PUC plan from those awaiting payment by PG&E. The PUC‘s plan “should be much more attractive to creditors (as a) a surer, sooner bet” to win approval. Robert Moore, the creditors’ lawyer, could not be reached for comment.
Consumer advocates criticized both the PG&E and PUC plans for failing to lower retail rates and sticking electricity users with the bill for billions of dollars of high-priced wholesale power. Most consumers’ bills have already been boosted by charges to finance power purchases by state government.
Consumer advocates didn’t see much to like in the PUC plan. “Rates should have come down already,” said Mindy Spatt, spokeswoman for the Utility Reform Network in San Francisco.
The Foundation for Taxpayer and Consumer Rights, which last week asked the California Supreme Court to stop the PUC from pursuing any plan that would tap consumers for a utility bailout, also was unimpressed. “Without public hearings, the PUC has decided that PG&E and the energy and banking firms that executed and financed the California energy crisis take precedence over consumers and California laws,” foundation spokesman Doug Heller said in a release. “That the PG&E plan is outrageous is no excuse for the PUC to break state law.”
The PUC plan is conditioned upon Wall Street credit rating agencies’ willingness to rate PG&E‘s bonds above junk status.
PG&E said that was good but that the plan made “none of the regulatory commitments needed to assure or achieve investment grade.” Cohen noted that due to a change in state law the PUC is now “obligated to enable the utilities to recover their costs.”
Richard Cortright, a Standard & Poor’s analyst, said he had not seen the plan but said he wanted to see “a series of regulatory actions that are clearly supportive of the utilities’ credit quality.”
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(c) 2002, Contra Costa Times (Walnut Creek, Calif.).
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