A federal bankruptcy judge in San Francisco last Wednesday gave the California Public Utilities Commission (CPUC) approval to file an alternate reorganization plan for Pacific Gas and Electric Co. as part of the utility’s Chapter 11 proceedings. Both sides immediately interpreted Judge Dennis Montali’s decision as a plus for their side in the ongoing bankruptcy battle. The CPUC said it would file its plan by April 15, noting that it expects the creditors’ committee to support it.

As an outgrowth of recent decisions leading up to the Wednesday ruling, the PG&E utility will file its amended reorganization plan and disclosure statement this week (March 7), arguing that there are “serious constitutional and regulatory barriers” raised in the bankruptcy court concerning the CPUC’s proposed alternative plan. A hearing is scheduled for March 26.

The PG&E utility initially filed its reorganization proposal last fall, recommending that it transfer all of its non-distribution assets (generation, power transmission and natural gas storage/pipeline transmission) within California to three separate new non-utility subsidiaries of its parent company, PG&E Corp. The action would transfer those operations from primarily state to federal regulation.

State officials at the CPUC, attorney general’s office and elsewhere have strongly argued for an alternate plan that would not break up the utility and still pay off its $13 billion debt to creditors and resume creditworthy status. PG&E has argued strenuously that the CPUC’s outline for an alternative plan is deeply flawed and will not allow the utility to resume buying wholesale power at the start of next year. The utility plan would, it argues.

Calling the judge’s ruling “an enormous victory for (utility) ratepayers,” Gary Cohen, CPUC chief counsel, said the state is now on “a level playing field” in the utility’s bankruptcy case, which was filed April 6, 2001. The ruling allows the state to present a plan that it contends will permit the PG&E utility to pay its creditors, become creditworthy and resume the wholesale (“net short”) power-buying function without breaking up the utility as it is presently organized, Cohen added.

“The CPUC was forced to admit [in last Wednesday’s hearing] that its hopes of an all-cash plan would not work and that its January 2003 timeframe might not be achievable,” the utility said in a prepared statement.

“Unless the CPUC can address these flaws effectively, its plan of reorganization would relegate PG&E to junk bond status [investment rating] and keep the state in the power buying business for years to come. The CPUC faces significant obstacles as to how to return [the utility] to investment grade status, how to address the $4.5 billion in debt their term sheet comes up short, and whether or not they will need junk bonds to finance any shortfall.”

PG&E reiterated its belief that its proposal will pay off all creditors without selling any assets and without raising utility retail rates. It is “the only feasible solution” for getting the company out of bankruptcy, the utility said.

The CPUC said Montali’s latest moves signal that PG&E’s current utility reorganization plan is “not confirmable” by the court. The regulators expect the revised plan to seek the “same deregulation scheme. We do not believe that PG&E can overcome the major legal hurdles that Judge Montali’s Feb. 7 ruling presents for its plan,” Cohen said. In the earlier ruling, the judge said there was no blanket federal pre-emption of the state laws that apply to PG&E’s proposed reorganization.

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