PG&E Bankruptcy Bonds May Lessen Ratepayer Hit

The multi-billion dollar bankruptcy bill that Pacific Gas & Electric ratepayers were saddled with may be $130 million lighter per year starting in 2006, according to the California Public Utilities Commission estimates. Around $1 billion in today?s dollars could be shaved off ratepayers' total tab by 2013. Refinancing during a period of low capital costs seems to be working in ratepayers' favor. However, no state agency or consumer group is keeping close tabs on the utility's bankruptcy bond refinancing, and some of the numbers below could not be confirmed. In February, PG&E sold $1.9 billion in bonds to replace part of the $2.21 billion phantom "regulatory asset" that was part of its bankruptcy settlement. The interest rate was below regulators' financing order estimates. Thus, the CPUC projected it will reduce ratepayers' burden by about $745 million. PG&E estimates on the cost reduction is in the $700 million range, said Jon Tremayne, PG&E spokesperson. The CPUC estimated the regulatory asset cost at about $440 million a year and the replacement bonds at $370 million. Thus, the refinancing benefit, which took effect in March, appears to have sliced off about $50 million from the cost of the regulatory asset this year. A second and final bond issuance of around $800 million to replace the remainder of the regulatory asset is expected to take place in early November, Tremayne said. Until the issuance is completed, ratepayers pay an estimated $164,000 a day in debt costs between the original bond issue and expected cost of refinancing, according to a Legislative staff member. The cost of completed refinancing may decrease utility bills an additional $310 million, according to the CPUC. PG&E estimates are in the $300 million range to 2013. "At least this once, ratepayers may actually get what they were promised," said Mike Florio, The Utility Reform Network senior attorney. TURN signed onto the PG&E bankruptcy deal after it agreed to the refinancing. The actual dollar reduction in PG&E ratepayers' burden from the refinancing the $2.2 billion asset, however, will depend on the interest rate locked in when the second round of bonds are issued, said Randy Wu, CPUC chief counsel. Ratepayers' total bankruptcy cost, according to the CPUC, was estimated to be $7.2 billion in April 2004. The city and county of San Francisco, however, disputed that figure, saying the figure was closer to $5.8 billion (Circuit, April 23, 2004). PG&E was unable to provide an update of the current costs by press time. Wu also noted that money from the settlement between California and Reliant will help cut the cost of the regulatory asset. This August, Reliant settled energy crisis claims brought by California and its Pacific Northwest neighbors for $445 million, $55 million of which will go to PG&E (Circuit, Aug. 19, 2005). How much the agreement will reduce PG&E's bankruptcy costs won?t be known until the settlement funds are "actually available and credited to the regulatory asset," Wu said. The unusual form of refinancing was approved in 2004, after the federal court handling PG&E's bankruptcy reorganization allowed the utility to cover part of its crisis-related debts with the creation of a $2.21 billion regulatory asset. Contrary to tradition, it was not a concrete asset, like a power plant. Instead it represented a phantom asset that allows ratepayers to be charged for a financial tool, which is to be replaced by bonds backed by dedicated rates. Part of the last-minute deal approved by the CPUC at the end of 2003 involved PG&E agreeing to legislation to refinance this fictional asset to reduce ratepayers utility bills by $1 billion over nine years.

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PG&E Bankruptcy Bonds May Lessen Ratepayer Hit

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