PG&E and TURN Agree: $1 Billion off Bankruptcy Tab

By Published On: December 18, 2003

The high-stakes controversy over how Pacific Gas & Electric should emerge from bankruptcy took a new twist with two usual adversaries, PG&E and The Utility Reform Network, putting a joint proposal to the California Public Utilities Commission this week. PG&E agreed to create a $2.2 billion dedicated rate component (DRC) to pay off a regulatory asset that would cover the utility?s claimed unrecovered costs?a move expected to save ratepayers $1 billion compared to other PG&E bankruptcy options now in play. The proposal, announced December 16, would also prohibit the utility from paying PG&E Corp?s bankruptcy costs. TURN was less than thrilled with the agreement, reiterating that it was the least costly ratepayer bailout to ensure PG&E returns to investment grade status. ?Unfortunately, we think lowering the costs for consumers and achieving an immediate rate reduction was the best we could hope for from this CPUC,? said Bob Finkelstein, TURN executive director. This surprising agreement to lift the utility out of bankruptcy constitutes a big change in PG&E?s negotiating position. PG&E parent company chief executive officer Bob Glynn has been adamant in maintaining that the corporation would continue fighting the state if it the latter were to reject the proposed reorganization settlement. That deal includes a $2.2 regulatory asset that comes with a higher interest rate and taxes, which, over a nine-year amortization period, is expected to cost ratepayers more than $7 billion. Ron Low, PG&E spokesperson, said the utility agreed to TURN?s modified proposal because it would require ratepayers, not shareholders, to foot the bill for the dedicated rate components? taxes and interest rate, estimated at $1 billion. Weighing on Glynn appears to be a recent Ninth Circuit Court of Appeals decision. That ruling gave state regulators more leverage to watch over the utility?and undercut PG&E?s ability to pursue its original plan of reorganization, which would have its nuclear and hydroelectric plants, as well as its transmission lines, covered only by federal regulation. With that recourse for PG&E now blocked by the appellate court?s decision, emboldened regulators floated three new, tougher plans for bankruptcy reorganization. The PG&E-TURN proposal?which brings the number of post bankruptcy proposals before the CPUC to seven?takes parts of commissioner Geoffrey Brown?s proposed alternate order and blends it into commission president Michael Peevey?s second alternate. After Brown?s proposed decision was issued, PG&E and TURN ?began a series of discussions to identify opportunities for additional savings to consumers,? Low said. Unlike Peevey?s proposal that would adopt the settlement as-is, his second alternate would not require the CPUC to ensure the utility reaches investment-grade status nor have CPUC guarantee dividends. Added to Peevey?s second alternate is the DRC?a financing mechanism that would pay off a regulatory asset with earmarked ratepayer funds. Although the latest proposal would cut the bankruptcy tab by a hefty amount, some insist it cannot be adequately assessed by December 18. ?What, are we going to have another proposal that comes out at midnight tonight?? asked Theresa Mueller, attorney with the City and County of San Francisco. She supports TURN?s plan to replace the PG&E and CPUC staff?s creation of $2.2 billion phantom asset with a DRC because of its lower costs but introducing it into the mix just before the CPUC scheduled vote was ?ludicrous.? TURN?s proposal for returning PG&E to investment-grade status via the consumer group?s proposed dedicated rate component appeared to have run out of steam because of the utility?s vigorous opposition?particularly at the Legislature. PG&E attorney Joe Malkin, of Orrick, Herrington Sutcliffe insisted the alternate financing scheme would not save a dime and would only shift costs to utility shareholders. TURN?s proposal had not been adopted by any of the five CPUC members earlier this month. Most commissioners said that they couldn?t include it in their alternates because legislation would be necessary to enable it. ?It is dead,? commissioner Susan Kennedy said at December 2 CPUC hearing. A few days later, however, Senator Debra Bowen (D-Redondo Beach) estimated a bill on the matter would be passed within a week, predicting that the governor would likely agree to hold an emergency session on the subject because of the savings involved. Still, Bowen said she is disappointed by the high costs to ratepayers inherent in the PG&E-TURN proposal. Last week, TURN met with Kennedy about the PG&E bankruptcy and the commissioner urged the consumer group to hammer out a deal.

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