At a time when good news is not always easy to find, San Francisco-based PG&E Corp. late Thursday received belated word of a favorable ruling from a federal appeals court judge in its headquarters city, rejecting a suit from the California Attorney General’s Office related to keeping separate from its utility’s Chapter 11 bankruptcy the assets of the corporation and its other, non-utility companies.
While noting the state AG would likely not appeal at this late juncture,. a spokesperson for AG Bill Lockyer said the initial ruling from 9th Circuit Appeals Court Judge Ronal Gould was announced last February, and a PG&E spokesperson for the holding company said the company was aware of it at that time. The delayed publishing of the verdict last Thursday kicked off wire service news coverage of the decision.
California’s AG in late January 2001 began challenging the Federal Energy Regulatory Commission’s approval of a so-called “ringfencing” of PG&E’s non-utility and holding company assets earlier that month, arguing that the move was a way for the utility holding company to protect millions of dollars of assets from utility creditors that were becoming anxious in the midst of the state’s wholesale energy market meltdown, and only two months before the utility, Pacific Gas and Electric Co., filed for Chapter 11 protection (April 6, 2001). (Lockyer in several legal actions argued that PG&E could have avoided the utility bankruptcy had it used internal financial resources to help out the utility at the time.)
A PG&E spokesperson Friday said the company is “obviously pleased and agrees” with the appellate court judge, but the decision has no direct impact on either the pending utility Chapter 11 bankruptcy proceeding now taking a hiatus for court-supervised settlement talks, nor the financially struggling PG&E National Energy Group (NEG), which is headed for its own voluntary Chapter 11 filing later this quarter, according to the parent company’s announcement last Tuesday.
PG&E’s CEO Robert Glynn told financial analysts on a first-quarter results conference call that bankruptcy proceedings are now inevitable for NEG because the unit is in default on loans totaling about $2.9 billion, it has no assets that can be used to get additional financing, and ongoing sale of assets “aren’t expected to restore company’s or subsidiaries’ financial standing.” Further, he said the court is “well-suited” to handle a case of this complexity in which more than 40 banks and public bondholders make up the creditors. No date has been set, but Glynn said the bankruptcy filing could “come as early as the current quarter.”
Glynn said neither the current bankruptcy-immersed utility, nor the holding company, are threatened with any “material adverse impact” from NEG’s prospective bankruptcy. At the same time, PG&E officials said they are assuming the utility will not come out of its now-more than two-year-old Chapter 11 bankruptcy until the end of this year, which would be almost 12 months later than originally anticipated.
After protecting its unregulated energy subsidiaries with ringfencing, PG&E proposed in its reorganization plan before the bankruptcy court that it break up the utility company by spinning off its wholesale electricity and natural gas operations, leaving Pacific Gas and Electric Co. to be a retail, wires/pipes distribution utility.
State regulators and other critics have complained that creating independent subsidiaries takes many of the utility’s assets and operations out from under state regulatory control and places them instead under what California argues is far less strict federal jurisdiction.
To prevent this, the California Public Utilities Commission has proposed its own reorganization plan for the utility. With the two competing plans, Bankruptcy Court Judge Dennis Montali, who is expected to rule on the reorganization later this year and lay out what utility industry analysts widely expect will be a compromise plan, has the parties going through settlement talks with another independent federal judge overseeing them to try to get the parties reach a compromise.
Ironically, PG&E nonutility activities continue to bleed red ink as PG&E announced last Tuesday a first quarter net loss of $354 million, or 93 cents/share, compared to net income of $631 million, or $1.71/share, for the first quarter last year. Under a new procedure of also consolidating the holding company and utility operations, PG&E and Pacific Gas and Electric Co., had profits of $172 million, or 45 cents/share, in the first quarter, compared with $183 million, or 50 cents/share, for the same period in 2002.
Not including headroom, the utility, despite its contentious Chapter 11 bankruptcy case, reported net income of $171 million, or 45 cents/share, in the first quarter, compared with $160 million, or 44 cents/share, for the same period in 2002.
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