With solutions underway on the regulatory, legislative and financial fronts, PG&E Corp. and its combination utility are optimistic that they will reach several key milestones by mid-year.

State legislation to refinance part of Pacific Gas and Electric Co. regulated utility assets is expected to emerge by the end of this month, according to the utility’s chief counsel Chris Warner. It would then take another six months or longer to implement the refinancing that could lower the retail electric rate impact of the bankruptcy settlement by up to $1 billion.

On a separate bankruptcy matter, PG&E’s former merchant energy unit, now called National Electric & Gas Transmission (NEGT), is expected to emerge from its own Chapter 11 proceeding “as early as some time during the second quarter,” according to PG&E officials, at which time it would formally sever all ties to the San Francisco-based holding company. NEGT’s plan of reorganization was approved by the bankruptcy court last week (see related story). An income tax issue involving more than $300 million in past tax refunds remains in dispute between the parent and NEGT, a corporate official said. A federal district court agreed last week to take up the issue outside of the federal bankruptcy court and has set a hearing for next year.

Gordon Smith, CEO of PG&E’s utility subsidiary, said power supplies are expected to be stable this summer and the utility does not anticipate any interruptions. He said PG&E disagrees with some of the worst-case-scenario projections of the state transmission grid operator.

Regarding a proposal from Gov. Arnold Schwarzenegger that the utilities’ move up to 2006 the goal of having at least 15% reserves, Smith said PG&E would have to contract for or build an additional 300 to 350 MW to meet that target.

PG&E CEO Robert Glynn was bullish about the prospects for the utility getting back into the power generation sector, noting it is an area with a “significant opportunity to add value.” When new generation will be built and by whom, Glynn said, is the subject of a major state proceeding at the California Public Utilities Commission (CPUC).

“California is in the process of determining who will participate in owning and operating new generation plants,” Glynn said during the conference call. “We’re actively participating in that process.” Glynn called the CPUC decision on the Southern California Edison Co. Mountainview Power Plant in Redlands, CA, the “beginning” of utilities getting back into generation.

Finally, in its pending rate cases, PG&E’s utility has $326 million at stake, the company officials said, although all of the general rate case ($288 million) is already reflected in the rates the utility is now charging.

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