Montali Looks at Bigger Credit Picture while Mulling PG&E Fate

Federal bankruptcy judge Dennis Montali wondered how exterior events that could lower PG&E?s credit rating would affect a reorganization plan?s implementation. What if PG&E suffered an Enron-like trading meltdown? Montali asked during a November 24 hearing. ?The rating agencies are going to make the rules,? he conceded. Montali is set to confirm or deny the settlement between Pacific Gas & Electric and the California Public Utilities Commission staff to bring the utility out of bankruptcy prior to a full commission vote. As if on cue, the next day, Moody?s bumped up Southern California Edison?s credit ratings a notch, pointing to a friendlier regulatory environment. For PG&E and the parties involved in the bankruptcy proceedings that seek to boost the utility?s investment-grade rating, a decision by Montali will be a milestone. But there are many more ahead. The CPUC will vote on December 18 to adopt the PG&E-CPUC agreement in its entirety or one of the other proposals before it. Montali set a post-confirmation-order hearing for December 22. ?We stand before the court today on the brink of resolution of the largest utility bankruptcy in history,? said PG&E attorney Stephen Neal, of Cooley Godward. Attorneys for PG&E, the state, and other claimants argued over what the judge should include in a final order. At issue are the pending settlement?s viability and whether Montali would have exclusive jurisdiction over the plan?s implementation. Also at stake are whether future commissions would be bound by a deal for nine years and the impact of Montali?s ruling on other claims. The latter involves allegations by the state attorney general that PG&E acted illegally when it sent its parent $5 billion prior to filing for Chapter 11 bankruptcy protection (see story on page 4). Neal insisted that Montali?s order state the federal court has sole jurisdiction over the matter. The judge noted the CPUC has not agreed to give him exclusive jurisdiction under the pending deal. ?How do I pin down their support?? Montali asked. Lawyers representing the state, cities, and other public entities pushed in the other direction and warned Montali against becoming a ?super-regulatory supreme court.? Paul Pascuzzi of Felderstein Fitzgerald, who represents the attorney general, said PG&E was ?seeking a pass to violate state law.? Montali also grappled with whether the proposed deal specified ?costs? needed to boost PG&E?s bottom line or set rates. He also asked for input on how to deal with a delay in implementation of a plan based on ?stale? information. Having PG&E?s postbankruptcy plans pending in the two different venues with different law and mandates?the federal court and the CPUC?has created numerous thorny issues. The lines separating the myriad complex issues in the pending postbankruptcy scenarios are far from clear. The trickiest part will be delineating which issues belong in whole or part in federal bankruptcy court and which in state court. ?Why should I second-guess the CPUC?? Montali asked. ?I will see if [the plan] complies with bankruptcy law.? He said the CPUC would be concerned with state law. Then there is the matter of the various plans in play and the unknown ramifications if Montali and the CPUC approve disparate reorganization deals. There are three plans before Montali, with the proposed PG&E-CPUC staff settlement currently at the forefront. On the back burner are PG&E?s reorganization plan, which seeks to free it of CPUC control, and the postbankruptcy plan that the CPUC and the creditors? committee pitched, which is similar to the proposed settlement. Meanwhile, the CPUC will vote on three PG&E scenarios to help get it out of bankruptcy and achieve an investment-grade rating. There are the plan that CPUC and PG&E lawyers hashed out behind closed doors earlier this year, one proposing minor changes to that deal, and a third that would reject much of the settlement and supplant it with new language to maintain the CPUC?s traditional cost-of-service ratemaking and ratepayer protection. The court?s job is to assess whether the settlement meets the ?lowest range of reasonableness,? Neal said. For him the answer was yes because the settlement agreement would pay off debtors? claims in full with interest. Unsecured debtors, including the city of Palo Alto and the Merced Irrigation District, which contend that they are owed up to $6 billion, point out they may be given the shaft. They are worried their claims won?t get paid in full because they are behind claimants who would get paid with $8 billion in secured debt. Dale Ginter, who represents Merced, insisted the proposed settlement was not feasible because PG&E made it clear it will not accept substantial changes to it. ?It is my way or the highway,? was how Ginter characterized PG&E?s stance. Whatever the outcome, if the federal judge and the CPUC agree on one reorganization plan, its implementation will likely remain tangled up in legal battles for years.

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Montali Looks at Bigger Credit Picture while Mulling PG&E Fate

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