Pacific Gas and Electric Co. CEO Gordon Smith told analysts last Thursday that the PG&E Corp. utility subsidiary is unlikely to reach some type of settlement agreement with regulators similar to the one regulators reached with Southern California Edison. PG&E’s electric rates are a penny/kWh lower and its debt is much higher than Edison’s was at the time of the settlement, he said.

At the Lehman Brothers “CEO Energy/Power Conference” in New York City, Smith also insisted that his company’s bankruptcy reorganization plan was far superior to the one put forth by the California Public Utilities Commission and is the best deal for shareholders who have lost huge amounts of market value from the state’s 2000-2001 power supply/price crisis.

Smith said some of the next key steps in the process will be getting initial creditor vote results on the competing plans of PG&E and the California Public Utilities Commission, which were expected to be made public by early this week, and getting a favorable ruling from the Federal Energy Regulatory Commission in early October on a proposed tariff between the revised utility and a newly created separate generating company consisting of the utility’s current nuclear, hydro-electric and power-purchase contracts. FERC hearings on the issue began in August.

Longer term, the key for the PG&E utility reorganization proposal — assuming it is confirmed by the bankruptcy court judge by the end of this year — is to obtain investment-grade credit ratings for the new companies. While indicating that PG&E has not talked to the rating agencies “in the last 90 days” during which they changed their criteria, Smith in response to some rhetorical questioning said he thinks it would be a “good idea” for the company to sound out the rating agencies in the near future.

“We continue to believe that the financial criteria [for the proposed new companies] continue to meet the [BBB/investment grade] threshold,” said Smith, noting that the rating agencies earlier had told him that the companies would be investment-grade, but he has “not had an update from them in the last 90 days.”

Smith indicated at the beginning of his presentation that the head of his affiliated PG&E National Energy Group (NEG), Thomas Boren, was supposed to join him at the conference, but Boren was in the midst of developing a major reorganization of the PG&E merchant energy operations, which has been buffeted by rating downgrades that have been pushed along by depressed credit and wholesale power markets. Smith, however, said the NEG financial struggles will have no affect on the utility’s bankruptcy reorganization plans. Both the holding company and utility are buffered from the merchant sector businesses, he said.

“We remain a hundred percent committed to our plan and think it is the best outcome for creditors, customers, employees and shareholders,” said Smith, who at one point admitted that the company may look “stubborn,” but it intends to stay with what it considers is the only prudent course.

What seemed to trouble some of the questioners was the assumption that no matter which side emerges from Chapter 11 with its plan confirmed, the other side will appeal the court decision. Thus, shouldn’t the utility be working more diligently to settle and avoid all of the long, costly litigation?

“An Edison-type deal doesn’t work for us,” Smith said. “We have utility rates that are a penny-per-kilowatt-hour cheaper than Edison. We also have higher debt. So the numbers we looked at in trying to apply an Edison-like deal to PG&E just don’t work. And we don’t see any desire to raise rates.

“We have had ordered mediation at the ordering of the bankruptcy judge, but there was no progress made on that. So we continue to feel our proposed reorganization plan is the best was the proceed at this time. [Court] appeals don’t last forever. We don’t feel a negotiated settlement is the way to go, nor has there been any sort of interest [in that] indicated by the CPUC.”

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