All and all, it has been a good month for PG&E Corp. and its bankrupt utility subsidiary, Pacific Gas and Electric Co. They have scored successes at the California Public Utilities Commission and in federal bankruptcy court in San Francisco. Moves by the state attorney general and a federal appeals court in San Francisco did not dampen the giant utility’s outlook as it prepared for its defining moments next month.

The stock market seemed to acknowledge the positive trend as the holding company’s stock price hit a 52-week high at mid-week, following the release of a CPUC administrative law judge’s proposed decision. The trial portion of the bankruptcy court’s consideration of the proposed settlement concludes Monday (Nov. 24) with oral arguments.

With the CPUC’s release last Tuesday of the ALJ’s and two alternate proposed decisions, all essentially ratifying the proposed Chapter 11 reorganization settlement with Pacific Gas and Electric Co. and the CPUC staff in slightly different ways, some interpreted the judge’s ruling as “rejecting” the proposed deal because it refused to fully accept the settlement’s restrictions on the regulatory panel’s ratemaking powers. Further, the state AG rejected provisions that would settle all outstanding litigation against the holding company and its utility.

Nevertheless, the utility reacted favorably, urging the full five-member CPUC to okay the settlement as filed, which is one of two alternatives offered by CPUC President Michael Peevey. Subsequently, in the legal chess game that is found in arcane bankruptcy cases such as the PG&E utility’s $12 billion case, the Ninth Circuit Court of Appeals ruled that “implied preemption” of state laws could apply in a bankruptcy case, even if “express preemption” did not, both of which applied to earlier reorganization plans the utility was pushing in the court.

PG&E issued a statement stressing that the three-judge panel’s ruling will have “no impact” on its proposed settlement agreement, which now is scheduled to be decided by the CPUC Dec. 18 and the bankruptcy judge by the end of December.

All of this did not deter California’s Attorney General Bill Lockyer, who has been pushing various civil and criminal actions related to the state’s 2000-2001 energy crisis, from trying to de-rail the proposed settlement to keep his legal actions against PG&E and its utility alive. Lockyer sent a letter to Peevey expressing “serious concerns” regarding what he called the “apparent intention of PG&E (the utility), PG&E Corporation and its directors” to be absolved of all pending litigation filed against them, such as the civil lawsuit filed by the state in January 2002 alleging they engaged in “unlawful, unfair and fraudulent business practices.”

Parts of the proposed settlement (Section 10) allow the utility and its holding company to be released from various lawsuits.

In the aftermath of the CPUC ALJ’s proposal and his two alternates, Peevey said that he “fully expects” that some remaining legal issues will be resolved by Dec. 18 when the CPUC is scheduled to vote on the settlement. In the meantime, the CPUC will hold oral arguments on the case Dec. 2, with written comments by the utility and others by Dec. 8. Other CPUC commissioners may issue their own alternates by Dec. 4, with comments on those other alternates from the rest of the commissioners due Dec. 11.

Among the legal issues still be resolved, could be the AG’s concerns, but also included is a subsequent environmental deal the PG&E’s utility struck Sept. 25 with a coalition of water resources, agriculture and environmental groups that relates to the parts of the proposed settlement that have the utility developing a nonprofit foundation and taking other steps to promote land conservancy for the vast watershed it controls as part of its hydroelectric system, which is the largest privately held hydro operation in the nation.

CPUC Judge Robert Barnett’s proposed decision supports the “key economic terms of the settlement,” according to a CPUC spokesperson, but it does not bind future commissions to the settlement in all ratemaking decisions. However, Barnett did state that “all possible consideration and weight” should be given to the deal in those future regulatory decisions.

In other areas, Barnett modified the settlement proposal in some aspects of the financial mechanics of collecting in rates the so-called “regulatory asset” created to help pay off creditor. He also expanded the environmental benefits that the utility provides the state, and required any subsequent refunds accruing to PG&E to be applied to lower rates paid by consumers over the nine-year life of the recovery plan.

Peevey’s alternatives both make the settlement legally binding on future regulators, but the first (Alternate #1) adopts the settlement as filed without changes, which is what the utility is urging the five-member CPUC to adopt next month; Alternate #2 would adopt enhanced environmental benefits that the Judge Barnett recommended in his proposed decision.

“We are on track and on schedule to resolve this matter by the end of the year,” said Peevey. “Judge Barnett’s proposed decision and my two alternates will maintain PG&E as a vertically integrated utility subject to CPUC regulation and will contribute to a decision by the full commission that should benefit PG&E ratepayers, the state and the environment.”

Peevey said all of the proposed decisions uphold “the basic economic terms of the proposed settlement,” projecting an initial rate reduction for PG&E’s retail utility customers of $670 million in 2004.

“In June, our company and the staff of the CPUC announced a proposed settlement agreement that, in the words of the U.S. Bankruptcy Court Judge Randall Newsome who oversaw the negotiations, ‘unequivocally…is a fair deal for both sides and a great benefit for all Californians,'” said PG&E utility spokesperson, Ron Low. “This proposed settlement will allow PG&E to exit Chapter 11 as an investment-grade utility, pay in full or otherwise fully satisfy all valid creditor claims with interest, and allow us to reduce our customers’ electric rates.”

The utility said it “appreciated” the efforts of ALJ Barnett and Peevey to keep the CPUC process on schedule, and the utility is most pleased that one of the proposed alternates is the settlement as filed.

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