Senators Seek to Take Pounds off PG&E?s Bankruptcy Bill

As the deadline to decide how Pacific Gas & Electric should exit from bankruptcy drew near, state senators insisted that shareholders contribute to the huge bill to recover the utility?s credit rating and that the financial tab for ratepayers be significantly lightened. The California Public Utilities Commission, which is slated to make a decision on PG&E?s bankruptcy plan December 18, did not escape legislators? disapproval. Senator Debra Bowen criticized the CPUC for failing to do a comparative assessment of the impacts of the half-dozen commission reorganization proposals on ratepayers and shareholders during a December 8 Senate Energy, Utilities and Communications Committee hearing. PG&E?s fate, which will be decided not only by regulators but by federal bankruptcy court later this month, ?will have a profound impact on the economy of Northern California for years to come,? she said. Failure to analyze the different alternates would surely lead to more litigation, Bowen (D-Redondo Beach) warned. Senator Joe Dunn (D-Santa Ana) surmised that CPUC negotiators agreed to the deal because they were battle-weary and that PG&E won ?the war of attrition.? He added, ?The long-term simple capitulation is perhaps a worst-case scenario.? There are six pending proposals before the CPUC ( Energy Circuit , December 5). At one end is commission president Michael Peevey?s alternate that would adopt the PG&E?CPUC staff settlement, which includes creating a $2.2 billion regulatory asset with an 11.22 percent rate of return for nine years?said to cost between $5 billion and $7 billion. At the opposite end is commissioner Loretta Lynch?s deal that would keep rates high for another year, seeking to pay off PG&E costs in 13 months. She estimates it will lower ratepayers? costs by $3.1 billion. The Peevey-endorsed proposed settlement between PG&E and commission representatives, which seeks to pay off PG&E?s claim of $12 billion in unpaid bills, is the most expensive deal for the utility?s ratepayers, Bowen noted. In addition to the regulatory asset, PG&E plans to issue $8 billion in secured debt. Bowen, along with commissioners Carl Wood and Lynch, also warned that the gag order placed on the settlement talks interfered with their ability to fully analyze the proposed deal and test the validity of PG&E claims. Wood said the settlement involved ?a lot of 'black box', which I am allergic to in general.? Specific questions posed about the settlement numbers resulted in a generic response from PG&E and other settlement proponents?that the utility is seeking $0.60 on the dollar. ?It is a shell game,? making it impossible to challenge any specific costs, Wood said. Wood also noted that federal bankruptcy judge Randall Newsom, who oversaw the settlement talks, chose the CPUC representatives and that the commission was not consulted during the process. ?We have no idea why the negotiators agreed to certain provisions and will never have any idea,? Lynch said. Brown, however, was not concerned about Newsom?s gag order. ?It doesn?t matter what was said. It is the document, not the process, we will approve,? he said. Bowen also challenged claims that PG&E?s high rates will drop at the beginning of the year if Peevey?s ?as-is? alternate is approved. Lynch added that utility bills would not be lowered before the second quarter of 2004. The Senate committee, which also included Richard Alarcon (D-Sun Valley), hoped to grill PG&E executives on their assumption about achieving investment-grade status, but none showed up. An irritated Bowen said with a smile, ?It sends a message.? After learning a PG&E lobbyist would represent the utility, Bowen moved PG&E?s spot on the witness list from the top to the bottom. The Numbers: PG&E v. ORA Of the unrecovered costs at issue, Pacific Gas & Electric asserts the figure is nearly $2.2 billion ($3.66 billion in pretax dollars). The Office of Ratepayer Advocates, using a different accounting method, concluded that costs were $475 million ($798 million pretax). ORA insists most of PG&E?s claimed costs did not benefit ratepayers. Not factored into the equations are the updated 2003 headroom forecasts, predicted to be ?significantly higher? than $875 million, said Robert Kinosian, CPUC assistant executive director. ?Headroom? is the difference between what the utility collects in revenues and its obligations. The differing totals for profits and losses the past three years include PG&E?s 2001 and 2002 headroom. PG&E?s numbers were $530 million lower for those two years. ORA also would exclude from PG&E?s unrecovered costs the following: - Incremental interest expenses of $1.3 billion. - Bankruptcy litigation costs of $444 million. - Increased 2001 taxes of $387 million on PG&E?s return on its retained generation plants. - Forgone tax benefits of $133 million. - Ending the gas hedging contract at a cost of $112 million because of the bankruptcy filing.

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Senators Seek to Take Pounds off PG&E?s Bankruptcy Bill

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