Bankruptcy Judge Rejects PG&E’s Attempt for Federal Control
By Michelle Logsdon - February 13, 2002U.S. Bankruptcy Judge Dennis Montali rejected Pacific Gas and Electric Co.’s (PG&E) reorganization plan Feb. 7, calling the outline “across-the-board, take-no-prisoners preemption strategy.”
Now he wants to see what the Public Utilities Commission (PUC) has come up with to help PG&E pull itself out of bankruptcy.
PG&E’s plan, filed in Sept. 2001, conflicted with at least 37 California laws and regulations. One of those laws, just passed in Jan. 2001, prohibits the sale or transfer of any utility power plants until 2006.
According to the plan, PG&E would transfer $8.3 billion of its assets to its parent corporation to create three new, federally regulated subsidiaries (Etrans, an electricity transmission subsidiary; GTrans, a gas transmission subsidiary; and Gen, an electricity generating subsidiary). Those assets include the Diablo Canyon Nuclear Power Plant, electricity and natural gas transmission systems, hydroelectric dams and 140,000 acres in the Sierra Nevada. PG&E would borrow against those assets to raise $4.35 billion to help pay its debts.
Consumer advocate groups applauded Montali’s ruling. Nettie Hoge, executive director of The Utility Reform Network in San Francisco, told the San Francisco Chronicle, “It is a severe setback for PG&E’s overarching plan to sweep aside all state regulation in favor of its own corporate agenda.”
But PG&E officials believe the PUC and the state drove them into bankruptcy by freezing electricity rates after partially deregulating the industry in 1996. PG&E claims it was unable to charge market value for the power it was buying and fell into significant debt as a result.
PG&E filed for Chapter 11 in April 2001 reporting $13.2 billion owed to thousands of creditors.
The filing came in the middle of negotiations with the governor’s office. Governor Davis responded to Judge Montali’s decision by saying his rejection was a wise move. “PG&E controls significant environmental assets, including hydroelectric dams and thousands of acres of critical watershed in the Sierra Nevada. It is in California’s best interest that these resources remain under the protection of California laws.”
PG&E attorney James Lopes told the San Francisco Chronicle, “The PUC and the state stood by as PG&E spiraled into bankruptcy...We believe the PUC and the state will do almost anything to derail our plan.”
Despite the ruling, PG&E released a statement saying they will proceed with their plan for reorganization. “While the Court did not accept the utility’s argument that federal law automatically preempts state law, the ruling does provide that preemption is possible, if necessary to confirm the utility’s plan of reorganization.”
During a press briefing Feb. 13, PUC General Counsel Gary Cohen announced that the Commission had turned in a terms sheet to Judge Montali outlining their plan for PG&E’s restoration.
The PUC plan shows PG&E’s debt at $7.9 billion because it will be paid off sooner than PG&E’s plan. Of that $7.9 billion, $6.1 billion will come from the utility’s accumulated cash since it filed for Chapter 11 protection. The remaining $1.8 billion will be collected from ratepayers while dividend payments to shareholders are postponed.
Although the two entities are critical of each other’s plan, they did finally agree to mediated discussions as requested by Montali months ago. They have also agreed on which mediator to bring to the judge for approval but will not announce that person’s name yet.
Attorney General Bill Lockyer predicts that PG&E will enter into an agreement with the PUC similar to that of Southern California Edison Co.’s. That agreement, reached in the fall of 2001, allows Edison to charge higher rates for two years and postpone its dividends to pay debt.
PG&E has until Feb. 21 to revise its plan or appeal Montali’s ruling. | 
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