PG&E repair plan would split firm
Proposal shifts assets away from regulated utility
Regulators eliminate user ability to pick
BY JENNIFER BJORHUS AND STEVE JOHNSON
Mercury News
PG&E filed a plan Thursday to pay off $13.2 billion in debt that it says won't raise rates, but outraged consumer advocates and some California officials argue the proposal violates state law and will lead to higher prices.
The blueprint calls for splitting the company in two, allowing it to avoid regulation by the California Public Utilities Commission. It shifts some of its most valuable assets, including transmission lines and hydroelectric plants, over to its non-regulated parent company.
Although company executives described it as ``plain vanilla bankruptcy work,´´ the 244-page reorganization plan pushes the envelope on the power of federal bankruptcy law and is sure to come under intense scrutiny in coming months. Company executives said they anticipate the plan would go into effect Jan. 1, 2003.
`We feel great´
``We feel great about it,´´ Robert Glynn, PG&E Corp.´s chief executive told analysts in a conference call Thursday.
PG&E filed the plan in U.S. Bankruptcy Court in San Francisco, less than six months after its utility filed bankruptcy.
The creditors committee, the 11-member body representing thousands of creditors in the landmark bankruptcy, said it ``fully supports this plan.´´
Others clearly do not.
``It´s a total and complete disaster for consumers,´´ said Assemblyman Fred Keeley, D-Santa Cruz, who is the Assembly´s Speaker pro tem. ``They have fashioned a way to conduct a regulatory jail break. They are going to completely remove themselves from any regulatory oversight by the state of California.´´
Keeley said he planned to talk to the state attorney general and the PUC about possible legal challenges to the PG&E plan.
Nettie Hoge, executive director of The Utility Reform Network (TURN) in San Francisco, said she was shocked at how audacious the plan is. Hoge said she suspects that the company filed it in the middle of the terrorism crisis to escape public scrutiny.
``We haven´t seen anything this bold and outrageous in the whole history of TURN,´´ Hoge said. ``They are plundering all of the beneficial assets of the utility and they´re not giving us anything back.´´
The company's strategy is to split itself in two. It would shift the power plants, in-state gas pipes, gas storage, electricity transmission lines and the vast network of hydroelectric plants of Pacific Gas & Electric Co., the regulated utility, over to PG&E Corp., the non-regulated parent company, for $4.6 billion in cash and some debt.
The stripped-down utility would stick to the retail gas and electric business going forward, although it would keep two power plants and some other equipment. The goal would be two separate publicly traded companies. The plan doesn't call for layoffs.
PG&E proposes that the utility's assets would become three new units under PG&E Corp. One unit would focus on generating power, one would focus on electricity transmission and one on gas transmission. The proposed unregulated units would issue investment-grade bonds to raise the cash to pay off creditors in a combination of cash and tradable IOUs.
Approvals needed
The plan requires not only the vote of the entire body of creditors, but the approval of the bankruptcy judge and three federal regulatory agencies, including the Federal Energy Regulatory Commission.
PG&E Corp. Chief Financial Officer Peter Darbee told analysts Thursday that the company had received a ``highly confident letter´´ from the Lehman Brothers investment bank indicating it could get investment-grade ratings for each of the businesses.
The proposed retail company would buy gas on the market, and electricity from the proposed power-generating unit of PG&E Corp. under a 12-year contract at an average of 5 cents a kilowatt hour. Retail customers won't be affected, executives said.
Others are concerned because the plan sidesteps the PUC, which is not being asked to approve it. It also appears to fly in the face of state law. Section 377 of the California Public Utilities Code, signed into law earlier this year, requires utilities to keep hold of their power plants until Jan. 1, 2006.
Gov. Gray Davis said the plan troubled him.
``This plan transfers more power to the federal government, which, during the last 18 months, has by and large treated California ratepayers shabbily,´´ he said. ``The California PUC, while far from perfect, has proven to be a more aggressive defender of ratepayers.´´
Conservationists worry that the utility's hydroelectric network, which includes 140,000 acres of land that is home to old-growth forest, could be plundered if it is transferred to a public company free of public oversight.
``Going forward in the brave new world of Duke and Enron and everyone else, profits matter before necessarily these other public benefits,´´ said Stephen Wald, coordinator of the California Hydropower Reform Coalition, representing 22 river-conservation groups.
U.S. vs. state law
PG&E argues that federal bankruptcy law trumps state law. The first page of the reorganization plan lists Harvard law professor and constitutional-law heavyweight Laurence Tribe as co-counsel. There's legal precedence for the move, and FERC has previously allowed utilities to divide, company executives told analysts Thursday.
Alan Gover, PG&E Corp.'s bankruptcy counsel, said the company isn't required to consult the PUC because the plan doesn't propose a rate change and the only area that is the PUC's business is rates. He said there are legal precedents for the shift of assets ``in the railroad area´´ and in the case of the 1988 bankruptcy of Public Service Co. of New Hampshire.
FERC Commissioner William Massey confirmed that FERC has approved the transfer of power plants and related equipment to affiliated and unaffiliated companies but said he couldn't comment in this case or whether the state would have any legal claim to challenge such a move.
The PUC said it was prepared to fight the plan.
``We´re entitled to say-so under state law,´´ said Commission President Loretta Lynch.
Mercury News Staff Writer Michael Bazeley contributed to this report.
Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660. |
