In a packed business meeting in which anti-utility sentiments were palpable, California regulators Thursday narrowly (on a 3-2 vote) approved a modified settlement agreement for Pacific Gas and Electric Co. to emerge from bankruptcy, paying off $12 billion to its creditors and regaining an investment-grade credit rating. The action follows a last-minute compromise between the utility and the state’s leading utility consumer group, requiring state legislation to realize an estimated $1 billion in savings for PG&E’s retail electric utility customers.

Appeals are sure to follow, but the action most immediately will allow the utility early next year to emerge from Chapter 11 bankruptcy, assuming the federal court judge will approve the deal in a court hearing Monday. And it will allow an immediate retail rate decrease of $670 million, followed by decreases that could run more than $1.2 billion before the end of next year, dropping the average PG&E retail utility rate from 13.9 cents/kW now in effect to 11.7 cents/kW.

Opposing CPUC commissioners criticized the deal for costing consumers too much, and also, they said, for probably being illegal in having state regulators accede their powers to the federal bankruptcy court for a nine-year period.

The compromise drew on language offered in an alternate from Commissioner Geoffrey Brown, often the swing vote on 3-2 decisions that have become the hallmark for the CPUC this year when it comes to tough energy issues. Brown subsequently dropped his alternate and joined CPUC President Michael Peevey in supporting the action that ultimately was approved through a third vote from the only regulatory panel member not sponsoring an alternative, Susan Kennedy.

Under Thursday’s compromise action, the modified settlement would allow for the so-called “regulatory asset” part of the deal to be replaced with consumer group TURN’s proposed “dedicated rate component (DRC),” if state legislation can be enacted to permit it. Last week at a legislative committee hearing on the proposed PG&E-CPUC staff settlement, state Sen. Debra Bowen, the chairperson of the energy committee, said she thought such a bill could be passed and quickly signed by the governor.

“The DRC could not adversely affect the PG&E utility’s investment grade credit ratings after emerging from Chapter 11, and PG&E would be permitted to re-balance its capital structure after receiving the proceeds of the securitization,” PG&E said in a prepared statement announcing the agreement with TURN.

The federal bankruptcy judge in the utility case ruled Dec.12 that he was prepared to okay a utility-CPUC staff proposed settlement if the state regulators okay an acceptable solution. Subsequently, the CPUC legal staff concluded the settlement as originally signed could not be approved because it violated state law in some aspects.

Commissioner Loretta Lynch was adamant in her opposition, saying that the settlement “trampled the public interest” in both the process used by the CPUC to arrive at a decision and in the substance of the agreement that she alleged unlawfully binds future state regulators by forcing them to assure the utility future investment-grade credit and rate coverage to support a minimum 11.22% return on equity.

The other dissenting commissioner, Carl Wood, stressed he wanted to get the utility out of bankruptcy, but to do it at “the lowest possible cost to ratepayers,” and that is what he claimed his alternate proposal accomplished. He wanted a much smaller regulatory asset to help pay off creditors, noting that the utility has more cash on hand than is being acknowledged based on its retail rates continuing to be considerably above the cost of the power it is selling.

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