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Power Suppliers Hold Cards in PG&E Bankruptcy
There’s no telling what the ultimate fate of PG&E Corp.’s bold move to move major assets out of its state-regulated utility operations as part of Pacific Gas and Electric Co.’s Chapter 11 bankruptcy reorganization plan will be, but major merchant generator/marketers are sitting comfortably with assurances they will recover up to almost $1 billion in unpaid wholesale power bills, regardless of what the bankruptcy judge decides.
That is the assessment of a bankruptcy specialist, John Hansen, with the San Francisco law firm of Nossaman, Guthner, Knox & Ellliott, who noted in an interview that “they (generators/marketers) will get paid off — it is just a matter of when.
“The assets and the money are there,” Hansen said. “They’ve made their deal, so they’re obviously interested in getting this confirmed as quickly as possible. They could come back and work an interim deal to get a portion, while it is on appeal,” if the state subsequently challenges the plan in the courts.
The deal the generators made was first put in place by Calpine Corp., and then used as a model for a number of other large suppliers, each owed tens, if not hundreds, of millions of dollars.
In Calpine’s case, it was owed $267 million in unpaid qualifying facility (QF) bills, and the PG&E utility wanted to continue receiving below-market priced supplies under long-term contracts with Calpine at about $5.37/kwh over five years. Under a deal approved by the court, the supplier will be paid all of the back-due amount, plus interest, at the time the judge confirms the reorganization plan, and in the meantime, it will continue to get paid under the supply agreement.
The other major generator/suppliers subsequently struck similar deals in which the court elevates all of their past-due billings to “administrative priority” when the plan is confirmed.
In addition, the major generators dominate the official creditors’ committee, so it is not surprising that the committee is very supportive of the PG&E plan, said Hansen, noting that secured bondholders are not represented on the committee, but their treatment will ultimately depend on how the plan deals with the utility assets.
Hansen said the reorganization plan at this point appears to have “pretty broad support,” based on the relative short time (less than six months) it took PG&E to file its plan and discovery statement with the court. There are still a lot of smaller, unsecured creditors who are not well-represented on the creditor committee, he said.
“But (the unsecured creditors) are getting the 60% cash and 40% notes, and committee decided that was a pretty good deal,” Hansen said. “There are a wide spectrum of different types of creditors, but whether the plan ultimately will have widespread support, no one knows for sure.
“This looks like a plan they (PG&E) truly intend to go forward with.”
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