As previewed for several weeks, Pacific Gas and Electric Co., San Francisco, on Monday emerged from the largest utility bankruptcy in United States history, three years and six days after filing for Chapter 11 protection in the midst of California’s wholesale energy market meltdown of 2000-2001. A last-minute court challenge by two dissident state regulators was rejected last Friday by a federal appeals court judge in San Francisco.
The utility and its holding company trumpeted its exit as supported by a wide spectrum of stakeholders, from creditors and the California Public Utilities Commission to labor, environmental and consumer organizations, although it is not without vocal opponents in the state regulatory and political arena. PG&E officials stressed the major financial benefits of completing the Chapter 11 process.
As the company emerged from the nearly $12 billion bankruptcy, it reported making about 2,100 payments resolving $8.4 billion in allowed creditor claims, and depositing $1.8 billion in escrow accounts for disputed claims. The utility said it used proceeds from an approximately $6.7 billion bond offering, $2.4 billion in cash on hand, and $800 million funded by term loans, and another $300 million from a credit facility to pay creditors.
In addition, PG&E’s utility reinstated about $814 million in pollution control bonds and paid $93 million in preferred stock, completing a bankruptcy that topped $11 billion in total claims. The company filed for Chapter 11 April 6, 2001, and reached the settlement agreement with CPUC staff and creditors June 19, 2003, in federal bankruptcy court-supervised talks. The CPUC approved the deal Dec. 18, 2003 on a narrow, 3-2 split decision .
“Regaining our investment grade credit ratings, paying creditors in full, and doing so without raising customer rates, achieves our objectives, and puts the energy crisis behind us,” said Robert Glynn, CEO of the utility holding company, who stressed what he called “the many benefits” of the settlement between the utility and the CPUC that permitted the approval of the bankruptcy reorganization plan by the creditors and federal bankruptcy court. Among them are:
Still to be realized is another $1 billion in savings in the cost of the settlement that is tied to a proposed new law being debated in the state legislature. The utility and the state’s chief utility consumer watchdog group, TURN (The Utility Reform Network), agreed to work collaboratively on the refinance law that would allow the creation of a “dedicated rate component” (DRC) in PG&E electricity utility rates to help pay for the emergence from bankruptcy, replacing a more costly component of the settlement.
A federal appeals court judge last Friday denied an eleventh-hour request for a stay of the utility’s settlement with state regulators, but PG&E’s utility nevertheless will be stalked by controversy in its multi-billion-dollar restructuring. Critics argue that the utility underwent a Chapter 11 filing that never should have happened, utility consumers have paid too much, and state regulators’ hands will be tied over the nine-year life of the settlement.
Countering this, the PG&E utility CEO Gordon Smith said that emerging from Chapter 11 financially healthy gives the utility “a solid foundation to continue investing in the infrastructure that delivers energy to our customers, and serves as the backbone of our state’s economy.” With it clearance of the bankruptcy, the utility also will be able to “re-engage” with the communities it served, and on the eve of Monday’s emergence, PG&E announced it distributed $77.5 million in property tax payments last Saturday to the 49 counties in which it operates.
Within hours of a U. S. federal district appeal court judge in San Francisco denying a request for a stay from the two dissident CPUC members, CPUC President Michael Peevey issued a prepared statement stating his pleasure with the ruling by Judge Vaughn R. Walker, saying to stop the process now would have “harmed PG&E, creditors and the public.”
Peevey said that the attacks on the settlement by dissenting PUC Commissioners are “blatantly wrong.” He said the majority of the regulators used its authority to “end the crisis, providing all the benefits we could for Californians, including lowering rates and preserving 140,000 acres of PG&E’s beautiful watershed land forever. It is time to close this chapter on the energy crisis.”
In denying the appeal by CPUC Commissioners Loretta Lynch and Carl Wood, Judge Walker cited what he called “several weaknesses” in their request. Their stay request was negated by both the alleged lack of timeliness in objecting to the modified settlement, and the regulators’ lack of “a personal stake” in the outcome of proceeding, such as creditors or ratepayers, the judge concluded.
Noting that a stay would do “significant harm” to creditors and ratepayers, Judge Walker said “the total cost of a stay could be many millions — if not billions — of dollars, not to mention the possibility that such delay and costs might put the proposed (PG&E utility bankruptcy) reorganization at a substantial risk of failure.”
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