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Utility Panel to Offer Alternative to PG&E Bankruptcy Plan

January 17, 2002|TIM REITERMAN | TIMES STAFF WRITER

SAN FRANCISCO — State regulators on Wednesday won the chance to show that they have a feasible alternative to a Pacific Gas & Electric Co. bankruptcy reorganization plan that would preempt dozens of state laws.

Over vehement objections from PG&E, federal bankruptcy Judge Dennis Montali ordered the Public Utilities Commission to submit a blueprint for its plan by Feb. 13 so he can determine whether it should be allowed to compete with PG&E's proposal.

Montali said he was skeptical but did not want to disregard the PUC's alternative because there are serious objections to PG&E's plan that, depending on how he rules in the coming weeks, could block it.

"I need the commission to tell me and show me that it really has a sensible alternative that is worth putting on the table," he said.

The judge also signaled that he may bring in a mediator to resolve some of the disputes between the PUC and PG&E that have surfaced in the bankruptcy proceedings and augur protracted legal appeals.

PG&E, which filed for Chapter 11 protection from creditors in April, asked for and was granted an extension of its exclusive right to present a reorganization plan to creditors and the court.

But Montali allowed the PUC to submit a "term sheet" for an alternative plan, outlining how PG&E's assets and other sources of funding would be distributed among PG&E's thousands of creditors. Then the judge will decide whether the PUC can submit a formal plan.

In a recent filing, the PUC said that its plan would use $4.9 billion in cash and other means to repay the company's creditors within a year. The PUC argues that its approach is cleaner than PG&E's, which involves paying large creditors 60% in cash and 40% in notes. The PUC says it also avoids the specter of years of litigation over PG&E's plan to preempt state laws and regulations, including the PUC's authority to approve the transfer of utility assets.

PG&E's lead counsel, James Lopes, argued that allowing the PUC to submit an alternative plan would delay the case and confuse the many creditors who had agreed to back PG&E's plan, and that it would undercut the confidence of money market managers who would help finance it.

"The PUC is opening another front in its war against PG&E and its shareholders," said Lopes. "We believe the PUC and the state would do anything to derail our plan." He acknowledged that there have been no meaningful talks with the PUC since the company filed for bankruptcy almost nine months ago, blaming the PUC for the company's billions of dollars in energy crisis-related debts.

Montali said he was disappointed that both sides have not tried to work out their differences. He ordered them to explain at a Jan. 25 hearing why he should not order them to meet with a mediator.

That same day the judge is scheduled to hear arguments on PG&E's attempts to preempt state laws as part of its plan to become a stand-alone utility while shifting transmission and generation assets to subsidiaries of its parent company. The PUC has called this plan a regulatory jailbreak, while the company says it is shifting regulation from the PUC to the Federal Energy Regulatory Commission.

The outcome of the issue, Montali said, could determine whether PG&E's plan can be used to bring the company out of bankruptcy.

PUC General Counsel Gary Cohen said outside court that mediation could be helpful in resolving the disputes. But he added, "As long as the agenda is removal [of PG&E] from state regulation, we will oppose that."

In a full-page ad in major newspapers, PG&E and its parent fired back Wednesday against a lawsuit filed by state Atty. Gen. Bill Lockyer. The ad said allegations that the parent company illegally siphoned more than $4 billion from the utility "are false and unwarranted" and intended to impede PG&E's plan.

Lockyer spokeswoman Sandy Michioku said the lawsuit was filed because the parent company broke its promise to the state that it would help keep the utility sound. "The parent corporation cannot escape that responsibility," she said.

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