But critics say consumers’ cost is too high
The San Francisco Chronicle
Pacific Gas and Electric Co. and state regulatory advisers announced a tentative deal Thursday that would bring California’s largest electric utility out of bankruptcy but, according to critics, saddle its 4.5 million customers with a tab of more than $8 billion.
The settlement of rival reorganization plans, reached after three months of negotiations, was immediately attacked by Gov. Gray Davis, two PUC members and two consumer organizations, objections that raised doubts about its prospects for ratification.
The proposal by PG&E and the staff of the state Public Utilities Commission holds a prospect of short-term rate relief for customers paying the nation’s highest electric bills: a reduction of 3.6 percent next January, or $2.50 on an average household monthly bill of $69.35.
But most of the financing of PG&E‘s debts would come from rates that would remain higher than PG&E‘s power costs.
The company already has $3.2 billion in surplus rate revenues that would be passed along to creditors under the settlement. Combined with an 11.22 percent rate of return for the utility, plus other costs, the nine-year charge would be $5.27 billion.
The settlement also would continue the current freeze on PG&E dividends through July 2004, costing shareholders $1.7 billion. It contains some concessions by the utility, including abandoning its plan to escape most state rate regulation. In addition, PG&E agreed to protect the 140,000 acres of woodlands around its hydroelectric plants.
The settlement needs approval from the five-member PUC, whose members were appointed by Davis. Reactions by the governor, two PUC members and prominent consumer advocates suggested a tough road ahead.
“I will oppose any deal that does not provide greater rate reductions for PG&E‘s ratepayers,” said Davis, whose handling of the 2000-01 energy crisis and ensuing financial hemorrhage has helped to fuel a pending recall campaign.
PUC members Susan Kennedy and Loretta Lynch, both former Davis aides, also said consumers would shoulder too much of the burden.
Douglas Heller of the Foundation for Taxpayer and Consumer Rights said the plan “steals billions of dollars from ratepayers” while allowing PG&E executives to keep large bonuses they have received since the company filed for bankruptcy.
Nettie Hoge, executive director of The Utility Reform Network, said it was “the most expensive settlement I can imagine.”
SOME SUPPORT FOR PLAN
More favorable reviews came from the two sides who negotiated the settlement and the judge who supervised three months of talks after a seemingly intractable two-year court battle.
“Without this agreement, PG&E faced a precarious future of uncertainty due to litigation and appeals, with troubling consequences for our state,” said U.S. Bankruptcy Judge Randall Newsome, who was appointed by a fellow judge to mediate the dispute in March.
“Now, the utility can regain financial soundness with a new capitalstructure and a stable regulatory environment,” Newsome said. He called the agreement “a fair deal for both sides and of great benefit for all Californians.”
PG&E said the deal was fair to the customers and the company and offered the quickest path out of bankruptcy. Paul Clanon, director of the PUC‘s energy division, said the settlement “helps us turn the corner on the energy crisis,” and added, “The time has come to stop the wrangling.”
PUBLIC HEARINGS BEFORE VOTE
He said the PUC would hold extensive public hearings before voting on the plan, which also needs approval from the board of the parent PG&E Corp. and the company’s creditors. A committee representing the largest creditors endorsed the proposal. The parties hope to submit the proposal to U.S. District Judge Dennis Montali for a final approval that would let it take effect next year and end the bankruptcy case.
PG&E filed the nation’s largest utility bankruptcy in April 2001, five years after backing California’s partial electricity deregulation that left the company unprotected from soaring power costs in mid-2000. The utility listed $13 billion in debts.
PG&E‘s reorganization plan was audacious: a transfer of its power plants and transmission systems to new companies that would be regulated by a market-oriented federal agency rather than the state PUC. The property would be used as collateral for loans to repay creditors, while customers would shoulder most of the costs.
The PUC countered with a legal challenge — based on the plan’s defiance of numerous California laws — and, in an unprecedented step, offered its own reorganization plan for the utility. That plan contained most of the elements of Thursday’s settlement: the dividend freeze, partial refinancing, maintenance of rates above costs, and preservation of an intact utility under state regulation.
PG&E pressed its own lawsuit against the PUC, seeking upward of $6 billion in rate increases for the 2000-01 spike in power costs. That suit would be dropped as part of the settlement.
One suit unaffected by the agreement, however, was filed by Attorney General Bill Lockyer and the city of San Francisco to undo PG&E‘s transfer of $4 billion to its unregulated parent company in the years before the bankruptcy filing. That suit is pending in San Francisco Superior Court.
Out of bankruptcy?
What’s the deal?: PG&E gets out of bankruptcy, the state retains regulatory control over the utility, and consumers pay the bill.
What’s the tab?: It could cost California’s 4.5 million customers more than $8 billion over nine years.
What’s the catch?: The governor, two state PUC members and consumer organizations objected that the deal would be too hard on consumers, throwing its ratification by the five-member PUC into doubt.
Chronicle staff writer Christian Berthelsen contributed to this report.
E-mail Bob Egelko at [email protected]
CORRECTION – DATE: June 21, 2003
Clarification: Friday’s article on the tentative Pacific Gas & Electric Co. bankruptcy settlement omitted an explanation of certain charges to consumers. State regulators would grant PG&E an immediate $2.21 billion “rate base” increase, which is a calculation of the increased value or worth of the utility. However, because those charges to ratepayers will be spread out over nine years, they will eventually amount to $5.27 billion.