Three New Alternates to PG&E?CPUC Staff Deal Added to Mix

Pacific Gas & Electric?s hopes that its bankruptcy reorganization was coming to a close with the end of the year were dashed this week when two plans to rework a proposed California Public Utilities Commission?utility settlement and one rejecting it were released. With the new attempts to fix and replace the deal to bring the utility out of bankruptcy, the CPUC faces a total of six options. Regulators are supposed to vote on the final deal December 18. The three new plans released late on December 4 all aim to reduce the financial hit on ratepayers for PG&E?s new solvency. ?The bottom line is that PG&E does not need as much money as the settlement would give them, given what they have already received through the high rates since early 2001, in order to return to financial stability and capability,? stated commissioner Carl Wood. Fellow commissioners Geoffrey Brown and Loretta Lynch also proposed their own versions of the deal, with Lynch rejecting the settlement outright. ?PG&E urges the CPUC to vote? for the original agreement crafted by CPUC staff and PG&E officials, stated the utility. ?[It] would restore our company to investment-grade credit status and bring an immediate, significant rate reduction to our customers.? PG&E did not say whether it would agree to any of the other changes mentioned in the new alternatives. There are two reasons for the rash of late alternatives. Wood and Lynch said the gag order on the negotiations kept them from getting a solid grasp on the complex underlying issues in the tight time frame. ?[T]he imposition of an artificial drop-dead date of December 31, 2003, for this Commission to act on the most important and far-reaching matter to come before this Commission in years aggravates the lack of adequate consideration and analysis,? Lynch wrote. A second event affecting the new plans came a day after the CPUC?s first three alternates were released. At that time, the Ninth Circuit Court of Appeals decision boosted the chances of continued state regulation of PG&E and a possible clash?real or perceived?with federal bankruptcy law. This paved the way for commissioners to revise the settlement in favor of more regulation without fearing that PG&E would revert to its original federal reorganization plan, which cut out commission authority. Brown noted that the Ninth Circuit gave commissioners leverage. ?PG&E?s risks, expenses, and delays are increased by the ruling, Brown stated.? He said that it is in PG&E?s interest to cooperate with the commission?s new attempts to tweak the deal. The new alternatives include: Regulatory asset? Wood?s alternate, which he said was not a ?radical restructuring,? would slim down the settlement?s $2.2 billion regulatory asset and its nine-year payback that is estimated to cost ratepayers $5.3 billion. The financing scheme under his plan would be reduced to $1.2 billion and the regulatory asset?s amortization period shortened to four years, estimated to save ratepayers $2.3 billion over that period. Lynch?s proposal would eliminate a regulatory asset of any size and extend the high rates until PG&E?s debt is zero, expected by the end of 2004. She estimated it was $3.1 billion less costly than the proposed settlement. Lynch also estimated that PG&E was short $2.95 billion, excluding its 2003 profits from the difference between rates and its costs. As of September 30, 2003, PG&E had collected $4.23 billion in headroom, according to the utility. Brown leaves the regulatory asset at $2.2 billion but amortizes it at five years or less, estimated to save ratepayers $741 million. Litigation expense?Wood would have PG&E shareholders bear the cost of bankruptcy litigation. Brown would prevent the utility from recovering from ratepayers $217 million in litigation costs for its parent corporation. Lynch would exclude recovery in rates of PG&E?s bankruptcy costs, $672 million in pretax dollars. Binding? Two of the original proposals had followed the settlement plans to bind the commission to the deal for nine years. The proposal by administrative law judge Robert Barnett did not. Binding future commissions to the present deal is important to PG&E as it signals Wall Street investors that there is no risk to altering the deal for its duration. Brown?s and Wood?s alternates agree that the deal binds future commissions, with Wood?s alternate locking the commission in for four years and Brown?s for up to five years. Lynch?s proposal would refuse to bind the commission to not making reasonableness assessments during the life of a deal. Upstreaming revenues? The initial alternatives all said that it was unnecessary to bind PG&E?s parent company to potential other legal cases. In particular, this refers to a case pursued by the state attorney general and the city of San Francisco regarding $5 billion that the utility upstreamed to PG&E Corp. before the bankruptcy. The new alternatives all disagree, leaving the ability to pursue that case unfettered. J.A. Savage also contributed to this report.

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Three New Alternates to PG&E?CPUC Staff Deal Added to Mix

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