CALIFORNIA COMMISSION SAYS IT HAS A PLAN TO PAY OFF DEBTS AND RESTORE THE UTILITY’S FINANCIAL HEALTH

Contra Costa Times

California regulators, intent on preserving their authority to set utility rates, asked a bankruptcy judge Tuesday to let them file their own proposal for paying off the creditors of PG&E Corp.’s utility unit.

The California Public Utilities Commission said in a court filing that it was “poised” to present a plan that would pay debts with cash, restore the utility’s financial health and avoid a court battle over the bankruptcy judge’s powers to preempt state laws.

That pre-emption issue, which has emerged as the main stumbling block to the utility’s own plan to emerge from its $14 billion bankruptcy, was the subject of additional court filings Tuesday by the PUC and California Attorney General Bill Lockyer. Both challenged the judge’s authority to override state laws — at least, to the extent sought by PG&E.

Lockyer dismissed PG&E‘s plan as an “attempt to manipulate the bankruptcy process to achieve deregulation,” especially over PG&E‘s hydroelectric dams and surrounding lands. Characterizing those holdings as “the largest privately held hydropower system in the country” and PG&E as “one of the ten largest landowners in California,” Lockyer said reining in state regulators and eliminating incentives for stewardship of those properties would have a “devastating” impact on the environment.

The PUC‘s filing said that the PG&E plan would improperly expand the bankruptcy judge’s role. “PG&E would have (the Bankruptcy) Court remain on as a ‘super-regulator’ to review and manage the relationship between PG&E, the (PUC) and ratepayers in California.”

In a release, PG&E noted that its plan has the support of the court-appointed committee that represents the interests of its thousands of creditors. It dismissed the PUC‘s bid to file its own plan as “simply the latest in a series of efforts to delay PG&E‘s emergence from bankruptcy.” In fact, the company said in a release, the PUC‘s “actions and inactions were a major cause of the state’s energy crisis and PG&E‘s bankruptcy.”

But the PUC said that it has a better solution to PG&E‘s financial problems than the company itself. That argument was introduced in a motion that asked Dennis Montali, the bankruptcy judge, to reject PG&E‘s bid to extend the period in which the utility owner has the exclusive right to submit a plan to emerge from the bankruptcy protection it sought in April. On Jan. 16, Montali is scheduled to hear PG&E‘s motion for an extension of that period of “exclusivity,” which has already been extended once.

Gary Cohen, the PUC‘s top lawyer, said in an interview that “PG&E doesn’t deserve another extension.” PG&E abused its exclusivity by using it to launch “a frontal assault on the Commission’s and the State’s regulatory authority” that has needlessly complicated the bankruptcy case, the PUC said in its court filing. “PG&E‘s creditors and other interested parties no longer should be held hostage to PG&E‘s battle plans against the Commission.”

Claims totaling $44 billion have been filed by the utility’s creditors. PG&E‘s plan, which counts on the bankruptcy judge to limit state authority over utility assets, aims to pay $13.7 billion of valid claims and a bankruptcy expenses with a combination of cash and interest-paying securities.

Cohen said the PUC plan would top that. “Under our proposal the creditors (would) get paid a lot sooner,” he said. According to an outline provided by the PUC, its plan would pay creditors by tapping the utility’s estimated $4.9 billion of cash on hand and future operating income and by restricting the utility’s dividend payments to its corporate parent.

As part of the plan, the PUC would promise to set utility rates high enough to provide the company with “an opportunity to earn a reasonable return that would allow it to maintain an investment-grade credit rating.”

“What we’re talking about is going back to traditional cost-of-service rate making that for 100 years worked just fine,” Cohen said.

But the PUC plan could leave PG&E‘s regulated utility financially exposed to a runup in wholesale electricity costs, since the utility has sold off some of the power plants it needs to meet customer demand, Cohen acknowledged. A wholesale cost runup that began in June 2000, combined with a freeze in the retail rates the utility could charge electricity users, sparked the financial crisis that led PG&E to seek bankruptcy protection for its utility.

Consumer advocates also questioned the PUC‘s move. The Foundation for Taxpayer and Consumer Rights said that the plan could take $5 billion out of the pockets of ratepayers: “While the objections to the PG&E proposal are sound, the state should not foist a bailout onto consumers as the alternative.”

The Utility Reform Network said it planned to submit its own alternative plan.