Short of electricity and even shorter of patience, consumers suddenly have lost some influence in California’s energy crisis: their ability to exert political pressure over a rescue plan for the state’s biggest utility.
Friday’s decision by the Pacific Gas and Electric Co. to file for Chapter 11 bankruptcy protection effectively shifts responsibility for the utility’s future from state leaders to a federal judge, one who doesn’t necessarily need to look out for consumer interests.
With near-monarchical powers, Judge Dennis Montali temporarily could double electricity bills. He could sell off PG&E‘s vast land holdings. He could unravel Gov. Gray Davis‘ hopes of buying the state’s electric grid.
Legally, the biggest creditors have the loudest voices in a bankruptcy. Customers generally have none.
Consumer groups say they are worried about the unchartered territory into which PG&E has plunged the state, but power generators say they are pleased that creditors can make their case in a less-politicized forum.
“We’ve filtered out the politics, we’ve filtered out the consumer rage,” said Gary Ackerman, head of the Western Power Trading Forum, a coalition of electricity marketers. “Now we’re down to creditors and debtors.”
As the historic bankruptcy case unfolds in San Francisco, the fate of consumers will be just one of a multitude of unknowns in the state’s power future and its repercussions for California’s economy.
The questions could touch everyone from environmental groups worried about PG&E lands to Sacramento Municipal Utility District customers who might face more rate hikes if changes are made to complex power contracts that involve PG&E, SMUD and a key SMUD supplier.
Amid intense focus on the bankruptcy’s implications, PG&E was upbraided Saturday by Davis and consumer groups for paying incentive bonuses to about 6,000 executives and workers Thursday, one day before it declared bankruptcy.
“PG&E‘s management is suffering from two afflictions: denial and greed,” Davis said.
The bonuses, normally given out annually, were withheld in January as part of PG&E‘s cash conservation efforts. They were resumed along with power line upgrades and other programs when the utility concluded it had enough cash, said PG&E spokesman John Nelson.
They would have totaled $80 million in a good year and were less this year, he said, unable to supply a figure. The money went to everyone from file clerks to company directors, but excluded company officers, Nelson said.
While PG&E was defending its actions, Judge Montali was apparently at work Saturday, as updates on next week’s hearing schedule appeared on the Web page of the federal Bankruptcy Court’s Northern District.
Before his appointment eight years ago, Montali was a prominent San Francisco bankruptcy lawyer who tackled major cases.
“He’s a workaholic. He’ll work as many hours as it takes,” said San Francisco bankruptcy lawyer John Hansen, who has known Montali for more than 25 years.
He described the judge as likely to look for creative solutions, and probably willing to establish new law if he concludes there’s a basis for quickly raising electric rates.
Montali, a 61-year-old judge with long experience handling bankruptcy cases, will face some daunting rulings as he presides over the largest utility bankruptcy filing in the country’s history.
Should he force PG&E‘s parent company to pay off some debts of its subsidiary? Should he force the utility to give up its transmission lines or its hydroelectric plants to the state? Should he call for PG&E customers to pay higher rates as part of the reorganization plan, and if so, how much?
“He is certainly going to get his 15 minutes of fame,” said Lynn LoPucki, a law professor at the University of California, Los Angeles. “How would you like to be the guy who triples the utility rates of the state where he sits?”
As LoPucki notes, under federal law, a bankruptcy judge cannot permanently raise rates in California without approval of the state’s Public Utilities Commission.
But while a utility’s reorganization is being shaped by the court, he said, a judge appears to have wide latitude to unilaterally raise rates until he approves a final plan.
The point has not been litigated in previous utility bankruptcy filings, but one section of the federal bankruptcy code says a judge may “issue any order, process or judgment that is necessary or appropriate to carry out the provision of this title.”
“A lot of us have assumed the bankruptcy judge has no authority to raise rates while the case has gone on,” said LoPucki. “But that has been called into question by various lawyers, and it is far from settled.”
Hansen said it would not be “beyond the pale” for a bankruptcy judge to conclude that PG&E can’t reasonably put together a reorganization plan until it can charge enough to cover its wholesale costs. Over the last year, average wholesale electricity prices have increased more than 800 percent, while retail rates have gone up just under 50 percent.
“The judge would be making new law,” he said, and from what he knows of Montali, “I don’t think he’d be hesitant to do it.”
If he chooses, Montali could hand down those decisions with no input from the 5.5 million households and businesses that write checks to PG&E every month.
Consumer groups are not powerless. They could sue to force PG&E‘s parent company to pay some of the utility’s debts, assuming the PUC fails in its own attempt to require PG&E Corp. to kick in some money. And LoPucki said he wouldn’t be surprised if Judge Montali gave consumer groups some kind of voice in the proceedings.
But there is no requirement for a bankruptcy judge to listen to consumers, acknowledged Harvey Rosenfield of the Foundation for Taxpayers and Consumer Rights. Still, his group will try to be heard.
“Any legitimate process has to include the ratepayers,” he said, and courts have allowed it before.
The case, to continue Monday with hearings into numerous issues on how PG&E handles its cash, potentially could affect every element of the state’s electricity morass.
Montali could determine whether a 29 percent average rate hike approved by regulators last month is divvied up as the PUC specified. If the judge approves some other formula, that could call into question how the state is repaid for PG&E‘s share of the $3 billion-plus California has spent buying power since January.
PG&E has complained that the state formula is unfair, but utility spokesman Nelson said Saturday that PG&E believes payments to California will be made in full because they are protected under state law.
The judge has another route to raise rates, if he chooses: He could decide to pull PG&E‘s existing federal lawsuit against the PUC into the bankruptcy proceeding, and rule himself on whether federal law forces state regulators to let PG&E raise rates.
Montali also will review PG&E‘s dealings with alternative power plants, called qualifying facilities, and if PG&E asks to sever those contracts, he could cut them free, which would force PG&E to buy more of its power on the pricey wholesale market and increase costs for its customers.
He could approve the sale of utility property, including up to 140,000 acres of PG&E forest lands, reservoirs and campgrounds.
“That could mean that some of its lands are sold to developers, and their environmental values will be lost,” said Steve Evans of the conservation group Friends of the River.
Consumer advocate Michael Shames said his biggest fear is not that the judge would raise rates, but that to restore PG&E to health, its power plants or other assets would be “sold off and put in the hands of the same friendly folks who’ve been gouging us.”
And for the most part, the consumers who could be touched by almost every action the judge takes will be watching.
Haskel Causey, co-owner of a lumber company in West Sacramento, said he wasn’t thrilled about a bankruptcy judge determining the rates paid by 13 million people in PG&E‘s service territory.
“It’s going to have a tremendous effect on the economy,” Causey said Saturday, of the prospect of higher rates. “People will be more concerned about their energy bills, and they are going to spend less. Then you throw in the downturn in the stock market, and things are look pretty bleak.”
The Bee’s Carrie Peyton can be reached at (916) 321-1086 or [email protected]. Amy Chance and Emily Bazar of The Bee’s Capitol Bureau contributed to this report.]
* Tuesday and Wednesday: Bankruptcy Judge Dennis Montali has scheduled hearings in San Francisco on PG&E‘s bankruptcy filing.
* Tuesday: The U.S. House Government Reform Committee will hold the first of three hearings this week on California’s energy crisis at 11 a.m. at the Sacramento Convention Center.
* Tuesday: The Federal Energy Regulatory Commission meets in Idaho with representatives from 11 Western states on electricity price volatility.