A local utility company spin-off and creation of three new separate federally regulated electric and natural gas businesses are central elements of a reorganization plan filed Thursday by Pacific Gas and Electric Co. in its Chapter 11 proceedings in federal bankruptcy court. The plan calls for all creditors to be paid in full without any added retail utility rate increases or a so-called “bailout” from state lawmakers. The utility, a major part of PG&E Corp., said the official creditors’ committee supports the plan, which the company expects to have fully implemented by the end of 2002.

At the heart of the plan is a splitting off of the utility natural gas/electric distribution business from generation and transmission. The latter operations for both gas and electricity will be moved into the corporation as three separate businesses, all of which will be under the jursidaiction of the Federal Energy Regulatory Commission and other federal regulators.

Pacific Gas and Electric Co. will remain the name of the local utility; the three new businesses for an interim period will be known as Gen (for the utility nuclear and hydroelectric assets); E-Trans (electric transmission system); and G-Trans (for the California natural gas transmission/storage system).

Saying that retail utility customers can “take to the bank” the assurance that service will continue unchanged without any rate increases, PG&E Corp. CEO Robert Glynn called the reorganization “big (one of the biggest ever), but simple and straightforward,” noting that it follows a bankruptcy boilerplate for first outlining a reorganization and then using that new organizational structure to refinance and pay off creditors.

Glynn said the plan meets the company’s stated objectives when it filed in bankruptcy court April 6 — namely, “providing a means to pay all valid claims and get out of bankruptcy with a solid foundation” in place to move forward in restoring financial viability. All of the utility and new non-utility businesses will be investment-grade in their credit rating when the plan is completed, he said.

In total, PG&E said the plan would provide creditors with about $9.1 billion in cash and $4.1 billion in notes. The vast majority of creditors — those with allowed claims of $100,000 or less — will receive cash payments for the full amount of their allowed claims on the effective date of the plan.

“Most secured creditors will also receive 100% of their allowed claims in cash,” PG&E said in its prepared statement. Finally, unsecured creditors with allowed claims in excess of the $100,000 threshold will be paid 60% in cash and 40% in notes.

“This plan is an achievable solution that will enable Pacific Gas and Electric Co. to move out of Chapter 11 as a financially strong business positioned to continue safe, reliable and responsive delivery of gas and electricity to its customers, pay all valid creditor claims in full, and do so without asking for a rate increase or a state bailout,” said Glynn, who is chairman of the PG&E utility along with being chairman-CEO-president of PG&E Corp. “And, the plan will enable us to provide long-term growth prospects to shareholders.”

It was not immediately clear what this development and the perceived ease with which the PG&E utility is negotiating bankruptcy will do to the political campaign by California’s governor to have the state legislature provide a rescue plan for the state’s second largest investor-owned utility, Southern California Edison Co., to prevent it from slipping into bankruptcy.

The plan reorganizes Pacific Gas and Electric Co. and PG&E Corp. into two separate, stand-alone companies no longer affiliated with one another. The reorganized utility will continue to own and operate the existing retail electric and natural gas distribution system, which represents about 70% of the current utility assets and 16,000 employees. The electric generation, electric transmission, and natural gas transmission operations currently under the utility will be part of PG&E Corp. The common shares of the reorganized Pacific Gas and Electric Co. will be distributed to the holding company shareholders.

Separate, new power sales and natural gas/electric transmission/storage contracts will have to be worked out between the distribution utility and individual new companies under PG&E Corp. The plan ultimately will allow the state to exit the power-buying function, Glynn said.

Overall, Glynn said the workforce will remain stable in each of the new entities. Each of the new companies and the revised utility distribution company will be able to issue debt and it will be combined with new financing at the utility to help pay creditors’ claims.

“The plan also restructures certain existing debt and uses $3.3 billion in cash on hand to satisfy creditor claims,” Glynn said.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.