Dealing for Dollars

Two poker players in the smoke-filled room are left at the table. The table spills over with cash. The two men?s eyes, half-hidden by their concentration, reveal nothing about the cards they hold, but they slyly glance at each other between sips of single malt, looking for sweat on the brow. After hours of drinking and hard playing, the pressure gets to be too much, and Florio throws his cards on the table. Richard laughs, throws down his cards, and scoops up the winnings. If there was a bluff, it wasn?t called. Is this a barfly-on-the-wall view of how Pacific Gas & Electric reached a deal with The Utility Reform Network to get it beyond bankruptcy? Not exactly?although poker terms were often used to sum up the high-stakes reorganization gamble leading up to the December votes at the California Public Utilities Commission. The just-described poker match was?or could have been?just another monthly session of the East Bay Men?s Sensitive Business Group, which happens to include Mike Florio, TURN senior attorney, and Dan Richard, PG&E senior vice president. The two were also among the key players who hashed out an agreement to get the utility out of bankruptcy, not in a dimly lit, smoky room but over the phone. The deal will cost ratepayers as much as $8 billion, but with the potential refinancing, the tab might be reduced by $1 billion. The savings is contingent on state legislators passing a bill to replace the $2.2 billion regulatory asset with a dedicated rate component?one of the face cards Florio kept in his hand. Florio swears that poker had nothing to do with the 11th-hour bankruptcy deal he and Richard reached that was adopted by the commission on December 18. ?Poker is fun, and there was nothing fun about dealing with that ugly mess,? he added. Furthermore, he stopped playing poker with Richard after PG&E lobbyists killed a bill TURN tried to get passed in the legislature last September. Funny enough, the bill would have allowed the CPUC to substitute PG&E?s $2.2 billion accounting-sheet ploy with?guess what?a dedicated rate component instead of a phantom asset to save ratepayers big bucks. PG&E?s earlier huffing and puffing in Sacramento blew TURN?s house of cards down, but then utility management agreed at the last minute to help put it back together again. Although they weren?t actually working through a deck of cards, the high-stakes bankruptcy game Florio and Richard played resembled poker, complete with big bets and big bluffs. Richard and his boss Bob Glynn lost their ace-up-the-sleeve after the Ninth Circuit Court of Appeals said PG&E couldn?t push aside state laws that interfered with its emergence from Chapter 11. Many think that card is a big reason Florio underplayed his hand. Another is that he underestimated TURN?s clout. When asked to compare his and Richard?s card skills, Florio would note only that his part-time poker buddy was full of crap ?all the time? and that Richard would say the same about him. Richard wouldn?t comment on Florio?s poker playing. One lingering question is why certain provisions of the July proposed settlement negotiated in secret were kept in play after the landscape changed following the appellate court ruling. Kept on the table was the December 18, 2003, decision deadline to get the country?s largest utility out of Chapter 11 proceedings, even after PG&E and TURN came up with a reworked deal late December 15. The rating agencies didn?t set the deadline. A two- to three-week delay would not have sent the financing down the drain. As a result, alleged violations of CPUC procedures and the open-meetings law are grounds for appealing the decision and subsequent bankruptcy court confirmation order. PG&E officials, however, had bigger concerns in mind, one being the momentum of the deal. The reorganization deal ?was a political hot potato, and PG&E management wanted to emerge from bankruptcy as soon as possible and not leave it open-ended,? said David Bodek, director of Standard & Poor?s utilities, energy, and project finance group. There was the threat, some would say bluff, of PG&E getting what it wanted from the bankruptcy court if the CPUC didn?t go along with it. But, again, that ace vanished with the appeals court decision. Had the commission not reached a decision by the end of last year, ?all bets were off,? said Lynn LoPucki, bankruptcy professor at the University of California in Los Angeles. Pushing for a firm decision date is a standard tactic used by large corporate debtors, and the more controversial the deal, the bigger a push to keep it from falling apart. CPUC member Jeff Brown was the key vote on the decision. Sources said Brown voted because he didn?t have a good reason to put off a vote. In the case of PG&E management, keeping the deadline in play also had the beneficial effect of increasing the utility?s stock price. That in turn boosted the value of the bonuses handed to the 17 PG&E current and ex-executives, which vested at the end of 2003 and were tied to the stock price. Last March, PG&E?s per-share value was around $12; the price more than doubled months later. After the commission?s 3-2 vote, the share price rose by an additional $2/share to reach nearly $28/share. That rise increased Glynn?s payout on his 615,385 shares, for example, by $1 million. Betting they could pull off the bonuses at that time without much fallout was incredibly foolish and a poorly timed play. ?Our office has gotten so many calls from people who are viscerally reacting to PG&E bonuses and Enron and others in bankruptcy that are paying bonuses,? said Assemblymember Mark Leno (D-San Francisco). Leno is pushing to take away the tax-exempt status of the bonuses. The decision deadline was one of the conditions of last July?s closed-door proposed settlement between CPUC staff and PG&E management. The bankruptcy court pushed the two sides into talks. Because of the court?s gag order on the wheeling and dealing, the commissioners were not privy to the rationale for agreeing to that date. Dissenting commissioners Loretta Lynch and Carl Wood repeatedly cried foul over being forced to make a decision without knowing key facts. ?We have no idea why negotiators agreed to certain provisions and will never have any idea,? Wood said. Lynch compared the secret, rushed deal to hours-long hearings used to ram through the deregulation law in 1996, known affectionately as former senator Steve Peace?s ?death march.? She warned that the bankruptcy deal would also lead to ?disastrous consequences.? I am not a gambler and don?t play poker. Last time I played a version of the game, which was eons ago, I dropped out after having to take my socks off. But then again, I have never been near $8 billion or anything close to that number of dollars. The whole steamy deal does, however, makes me want to be a fly on the wall to see what Florio and Richard bet during the Sensitive Business Group?s card games?quarters, ones, twenties, or somebody else?s wallet.

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Dealing for Dollars

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