Some commissioners unhappy over ‘costly’ bankruptcy agreement

Alameda Times-Star (Alameda, CA)

With Gov. Gray Davis opposing Pacific Gas & Electric Co.’s proposed bankruptcy settlement, state utility regulators face a dilemma: Should they alter an agreement reached by their own staff or approve the deal?

The five commissioners, all of whom were appointed by the governor, plan to review the proposed settlement in the coming months and to reach a decision by year’s end. Two have already criticized the deal publicly.

Commissioner Carl Wood said Friday that the proposed settlement meets the commission’s main goal, keeping PG&E under state control, but does so at a “considerable cost.”

Utility regulators, he said, must decide whether the proposed settlement is better than trying to negotiate more with PG&E or returning to battle things out in bankruptcy court.

“That may be the best deal that’s possible, or it may not,” Wood said. “That’s what we have to decide.”

Under the settlement, PG&E would pay back $12 billion in debt by keeping electricity rates high enough to pay back its creditors. To finance the plan, PG&E would issue $8 billion in new debt, reinstate $1 billion in debt and use $3.2 billion in revenue from its 4.6 million customers that has accumulated for more than two years.

PG&E‘s shares rose nearly 11 percent Friday on news that the settlement agreement had been reached. The company’s stock closed at $21.51. up $2.11. In a conference call, company officials said they plan to begin paying a dividend to shareholders in late 2005.

Shortly after the settlement was announced Thursday, Davis called it “too expensive for the ratepayers,” saying he would oppose any deal that doesn’t cut PG&E rates further.

Commissioner Susan Kennedy, a former top Davis aide, also quickly issued a statement saying that she “can’t support any bankruptcy plan that does not give substantial relief to ratepayers.”

Commissioner Loretta Lynch said she was “concerned about the apparent increased costs to ratepayers.”

Two other commissioners, PUC President Michael Peevey and Commissioner Geoffrey Brown, have been more circumspect about their opinions, promising a diligent review process. Still, the statements of Lynch and Kennedy, who have taken opposing points of view on some key issues, raised some eyebrows Friday.

“It suggests that the commissioners have not been kept apprised of the contents of the settlement agreements,” said Matt Freedman, staff attorney with San Francisco consumer group The Utility Reform Network. “If they’re not informed of it, then who was negotiating and on behalf of whom?”

The two sides have characterized the settlement agreement as being between the PUC‘s staff and PG&E. Asked who was involved in the negotiations, commission spokeswoman Terrie Prosper said: “That’s confidential. We can’t talk about that.”

The governor’s critical statements, and those of the PUC commissioners, set off speculation that the governor’s office had engineered a deal with PG&E that Davis could criticize at first then revise later.

“I think that there will be some effort to shave off a little bit off the price,” said consumer advocate Doug Heller of the Foundation for Taxpayer and Consumer Rights. “Something will be done that will make it look as though there has been some movement to change the plan, when it will only be artifice.”

Davis spokeswoman Hilary McLean denied that such an arrangement had happened, saying, “These guys are imagining a little too much palace intrigue.”

Exactly how much of the tab PG&E‘s customers would have to pay remains in dispute. TURN calculates that the plan will cost PG&E customers at least $8.87 billion.

PG&E spokesman Ron Low called those calculations “flawed” because they include the cost of existing debt used for capital costs such as poles, wires and transmission lines. But Low did not provide an alternate estimate of how much the plan would cost consumers.

Consumer groups are particularly critical of one aspect of the plan, a $2.21 billion financing tool called a “regulatory asset,” which would be paid off over nine years. It will cost ratepayers about $5.3 billion to pay that $2.2 billion back, according to TURN’s calculation.

“I could put it on my credit card and get a better rate of interest,” Freedman said. “There is almost no more expensive way to finance this than what they are proposing.”
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Alan Zibel may be reached at [510] 208-6414 or [email protected]