Bankrupt Utility Opposes Proposal
San Jose Mercury News
State utility regulators Monday filed their official plan for repayment of the $13.5 billion that PG&E‘s bankrupt utility owes, paving the way for creditors to vote on rival plans this summer.
But the plan was under attack almost before it hit the desk in U.S. Bankruptcy Court in San Francisco.
As it originally suggested in February, the California Public Utilities Commission plans to keep the utility in one piece under state regulation, contrary to PG&E‘s proposal to break up the utility business and move some operations out of state control.
The PUC plan calls for PG&E to repay in cash by January all the $13.5 billion it owes creditors. The money would come from saving the cash the utility continues to generate, saving the dividends that would have been paid to shareholders in the parent company and restructuring long-term debt.
In addition, the plan calls for two new elements: issuing $3.9 billion in new debt and raising $1.75 billion by selling stock in the utility, diluting existing shareholders’ stock. The holding company PG&E Corp. currently owns 100 percent of the outstanding stock in the utility.
The PUC voted 5-0 in favor of the plan, said general counsel Gary Cohen. He called the plan “equitable” and said it doesn’t place too heavy a burden on either California ratepayers or company shareholders.
PG&E fired back quickly, saying the plan doesn’t make the regulatory changes necessary to get the utility’s debt back to investment-grade level so that it can tap investors for new loans at good interest rates. The plan violates shareholders rights, PG&E said in a statement issued Monday, and would “greatly harm” employees and retirees whose retirement savings include a lot of PG&E stock.
PG&E‘s plan, first filed in September, calls for breaking the utility into four parts, moving major assets away from state regulators and using the resulting new companies to issue debt. Savings from shareholder dividends, which were suspended in January 2001, would be invested in infrastructure improvements.
Under this plan, the utility would also pay off creditors by January 2003 — but only those with claims under $100,000 would be paid 100 percent in cash. The others would be paid in a combination of 60 percent cash and 40 percent long-term IOUs.
PG&E‘s plan has evolved since it was first filed. The power company backed off shifting all 132,000 acres of land associated with the utility’s network of dams and hydropower facilities to the new companies it wants to create away from state control. Now it proposes shifting only the 54,000 acres of land that is directly related to hydropower.
PG&E has also agreed to prove in court why it should be allowed to ignore the state laws and regulations that its plan runs up against. The issue of pre-empting state law isn’t going to be argued in court until after creditors vote on the dueling plans.
The Foundation for Taxpayer and Consumer Rights on Monday accused the PUC of shifting the burden of California’s electricity deregulation fiasco from power companies to innocent ratepayers.
Thursday, the taxpayer group filed a lawsuit in the California Supreme Court charging that the PUC illegally forged its plan behind closed doors and is illegally trying to force ratepayers to foot PG&E‘s bankruptcy bill with excessively high power rates.
The PUC claims it’s done nothing wrong.
“It would be really impossible for the commission to engage in a discussion of litigation strategy and a discussion of how to handle the many difficult legal issues that relate to the PG&E bankruptcy if it had to do that in public session,” Cohen told reporters Monday.
Creditors to decide
Which of the two embattled bankruptcy plans — which are themselves now generating more litigation — will win is up to creditors. Ballots are slated to be mailed out sometime after June 17th.
The official creditors committee in the bankruptcy, which represents tens of thousands of creditors who must vote, has been solidly behind the PG&E plan.
Paul Aronzon, attorney for the committee, said Monday that he hadn’t yet analyzed the PUC‘s final plan. But he said that what the PUC has described “has a chance.”
Contact Jennifer Bjorhus at [email protected] or (408) 920-5660.