Claiming it has a more cost-effective, quicker solution, California’s regulatory commission last week filed the outline of its plan for reorganizing bankrupt Pacific Gas and Electric Co. with a federal bankruptcy court in San Francisco. Creditors would be paid off by the end of January next year, at which time utility electricity rates would be lowered, ultimately saving consumers billions of dollars.

The California Public Utilities Commission (CPUC) also confirmed that, per a bankruptcy judge’s request, the regulators will be proceeding with a third-party mediator with PG&E, seeking to find a mutually agreed-to solution within the bankruptcy context.

PG&E in a prepared reaction said the “most striking” flaw in the CPUC’s proposal is that it “continues to misunderstand the meaning of creditworthiness,” and the outline from regulators “will not restore the utility to creditworthy status, thus condemning the state to remain in the power business.”

The statewide utility consumer watchdog, The Utility Reform Network (TURN) expressed disappointment in the CPUC outline, saying it had hoped for a plan that was “fair to consumers,” and instead found one that is “too rich for PG&E.”

The PG&E utility has a starkly different proposed reorganization plan and is opting to spin off all of its non-distribution utility assets into three nonutility companies created under its parent company, PG&E Corp. of San Francisco. Under Bankruptcy Judge Dennis Montali’s ruling two weeks ago, PG&E has until this Thursday (Feb. 21) to respond to the outline in 20 pages or less. A hearing is scheduled for a week later (Feb. 27), for the judge to make his final ruling as to whether the CPUC can file an alternative reorganization plan.

CPUC’s general counsel and head of its energy division said they thought their proposed plan could be carried out in an accelerated, but realistic, schedule. “We’re pretty optimistic that the judge will approve our filing a plan, and we have told him we will do that by April 15 (if authorized to do so),” said Gary Cohen, CPUC general counsel.

In its so-called “term sheets,” or outline of a reorganization plan, the CPUC has some major differences with the PG&E plan, which assumes $13 billion debt needing to be paid, while the regulators’ plan outline assumes $7.9 billion being paid to creditors by the end of January next year.

Among the CPUC’s provisions that the regulators claim will save retail utility consumers an extra $8.6 billion, compared to the utility’s proposal, are: (a) continued suspension of PG&E shareholder dividends through 2003; (b) shareholders foregoing $1.6 billion in returns on equity through 2003 as part of the payoff of creditors; and (c) PG&E’s utility could resume buying wholesale net-short power supplies in January next year, and all of its operations currently under state regulation would remain so.

The CPUC outline estimates $6.1 billion in cash for PG&E utility operation by Jan. 31, 2003, and residual generation revenues (in excess of retail electric rates over PG&E’s wholesale power costs) of another $1.75 billion at of the same date next January.

“The CPUC would establish a cost-of-service rate structure that would provide PG&E with an opportunity, after emerging from Chapter 11, to recover its costs and earn a reasonable return on its assets consistent with state law,” CPUC’s Cohen said. “The cost-of-service rate structure would become effective after debts are paid in full or reinstated/refinanced.”

Underpinning the CPUC proposal as a attempt to sway the bankruptcy judge, the regulators claim their plan will get PG&E’s utility out of bankruptcy “without the significant risks posed by PG&E’s reorganization plan.” The CPUC plan “avoids huge loses from asset transfers,” the regulators noted, alleging that nearly $9 billion in assets would be moved to new entities as a means of reducing creditor claims by $4.35 billion, netting a savings to ratepayers of $4.65 billion.

Nettie Hoge, TURN’s executive director, said her consumer group has already proposed a better reorganization alternative for PG&E’s utility by simply “modestly reducing” at about $2 billion annually shareholder profits over the next 12 years.

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