PG&E Bankruptcy Refinancing Yields Questionable Savings

An Internal Revenue Service decision that paves the way for refinancing $2.2 billion of Pacific Gas & Electric?s bankruptcy debt will produce only a $50 million reduction in ratepayers? bankruptcy tab this year?a fraction of the anticipated $1 billion in savings. Additional savings are expected from the second bond issuance and over the nine-year life of the bonds, according to PG&E spokesperson Ron Low. Still, the total amount is unknown, and there are questions as to whether it will actually reach the figure promised during the bankruptcy settlement. Mike Florio, senior attorney with The Utility Reform Network, called PG&E?s $50 million savings estimate for 2005 ?very conservative.? He said that estimates ?fairly consistently? show savings of $100 million a year at nominal value?i.e., without factoring in present dollar discounts, given current interest rates. A little more than a year after PG&E emerged from bankruptcy, the IRS issued a ruling December 28, 2004, that allows the utility to spread the significant tax on refinancing its $2.2 billion phantom regulatory asset over time instead of requiring that it be paid in a lump sum. The original ?rate reduction bonds? under deregulation law AB 1890 received this tax treatment, according to Florio. In both cases, the financing was not for a traditional utility asset but a tool to provide utilities with capital secured with ratepayer backing?thus allowing them cheaper access to capital than would traditionally be available. The anticipated IRS ruling removes one of the last hurdles standing in the way of the issuance of $3 billion in bonds to refinance PG&E?s regulatory asset. The refinancing bonds will be issued in two rounds over a year?s time, with the $1.8 billion issuance expected to occur later this month, according to Low. California Public Utilities Commission president Mike Peevey is said to be pressuring the utility to conduct a single issuance to tie up the matter, but PG&E is resisting because of the huge infusion of cash that would result. Legislation was passed last year that made way for the refinancing of the regulatory asset, which comes with lower interest and taxes, to reduce ratepayers? tab?estimated at $8 billion when the bankruptcy deal was approved in December 2003.

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PG&E Bankruptcy Refinancing Yields Questionable Savings

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