Last-Minute PG&E Bankruptcy Plan Squeaks Through

Nearly three years after the infamous energy crisis, the California Public Utilities Commission voted on a deal to get Pacific Gas & Electric beyond Chapter 11 bankruptcy. It saddles ratepayers with as much as $8 billion of the utility?s bankruptcy bill but may keep consumers from picking up the tab for another $1 billion over the long haul. The CPUC plan approved December 18 came out of a surprise agreement reached earlier this week by two usual adversaries, PG&E and The Utility Reform Network. The last-minute plan keeps the proposed settlement?s $2.2 billion regulatory asset but makes room for the creation of a dedicated rate component (DRC) to pay it off?if the legislature agrees. The deal ?is an extremely expensive way to go,? warned commissioner Carl Wood. ?It is too one-sided; all the obligations are on the commission and not on PG&E.? The swing vote, commissioner Geoffrey Brown, said he signed on to the new plan because ?Northern California needs a boost right now.? CPUC president Michael Peevey added that business groups were ?clamoring? for a rate reduction. The CPUC raised rates 40 percent in 2001 to help PG&E cover soaring wholesale power costs. Brown, who coauthored the decision, originally proposed shortening the life of the hefty amortization of the regulatory asset?11.22 percent on the equity portion?to four years but changed his mind after talking to credit-rating officials. The $2.2 billion, nine-year asset was needed to allow PG&E to get a low interest rate on the $8 billion it will borrow to pay back creditors in full, he said. Under the decision, rates will drop in the early spring by 16 percent, from the current high level of an average $0.138/kWh to $0.124/kWh. Large businesses, including the California Large Energy Consumers Association and the California Manufacturing and Technology Association, threw their support behind the deal. The amount of ratepayer savings and how they will be allocated among the different customer classes remains to be seen. The cost reduction depends upon whether and when the legislature passes a bill authorizing a DRC that would set aside a percentage of rates to finance the regulatory asset. PG&E was given authority to develop a plan to lay out how financial responsibility is to be divided. Commissioner Loretta Lynch said the historic decision ?will be a case that will be held up as an example of how the public interest can be trampled.? She objected to the rushed vote and compared the settlement deal to former State Senator Steve Peace?s so-called ?death march??interminable meetings used to ram through the deregulation law. ?It is a long march, full of false promises that will have disastrous consequences,? she said. The deal?passed on a 3-2 vote?would have a nine-year tenure and give the federal bankruptcy court jurisdiction over the settlement for the duration. Present and future commissions will have no say about the reasonableness of the deal?s cost, as it binds future commissions to the current decision for nine years. Lynch asserted that preventing commissioners from making reasonableness determinations on PG&E rates violated their statutory and constitutional duties. Other costs?albeit small in the scheme of things?are also eliminated, including PG&E Corp.?s litigation expenses, which cannot be covered by rates. The deal also does not require the CPUC to guarantee dividends because ?PG&E may engage in unreasonable and imprudent conduct.? But it does allow PG&E to pass on the multimillion-dollar cost of its interest-rate hedging. The final decision also: ? Clarifies that the claims of the state attorney general and the city and county of San Francisco on the $5 billion sent to PG&E Corp. prior to filing for bankruptcy can be pursued in court. ? Requires the CPUC to help PG&E reach and sustain an investment-grade credit rating. ? Allows PG&E to keep headroom accumulated for the last three years. However, any amount collected this year over $875 million, which is expected, will not be included. ? Protects 140,000 acres of watershed lands from development in perpetuity. ? Sets aside $100 million for environmental enhancement and wilderness outings for urban kids. ? Allocates $30 million for developing clean energy technologies. ?After Pacific Gas and Electric Company emerges from Chapter 11, it can return to the traditional roles it has played in California?s economy, roles that have been interrupted by the challenges of the energy crisis,? said Bob Glynn, chief executive officer of PG&E Corp. A disappointed Senator Debra Bowen (D-Redondo Beach) countered that the decision requires ratepayers to reward PG&E for voluntarily entering into bankruptcy. ?A company shouldn?t be able to file for bankruptcy, then come out with its shareholders and executives being better off than they would have been if the company hadn?t filed for Chapter 11,? she said. The CPUC decision heads to federal bankruptcy judge Dennis Montali for confirmation on December 22.

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Last-Minute PG&E Bankruptcy Plan Squeaks Through

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