FW: Elec Daily - PG&E's reorganization

-----Original Message-----
< Electricity Daily
<
< Tuesday, September 25, 2001
<
< Analysis: PG&E's Brilliant Reorganization
< The reorganization plan that PG&E Corp. and Pacific Gas and Electric filed
< in U.S. Bankruptcy Court last week (ED, Sept. 21) is brilliant in its
< simplicity. It essentially moves as much of the company's hard assets as
< possible away from California's notoriously business-averse politicians
< and regulators and to the more predictable feds. That step, itself, makes
< the businesses creditworthy, because it creates a predictable revenue
< stream.
< The one element of the business that can't be severed from the
< jurisdiction of the rapacious California Public Utilities Commission - the
< retail electricity and gas distribution utility - will be so fenced in by
< federally-approved wholesale contracts that the CPUC will have no choice
< but to pass through costs preordained as just and reasonable or face
< certain loss in the courts. In the meantime, PG&E's filed rate case
< continues in court, with every likelihood of success, further limiting the
< damage that the demented regulators can impose.
< PG&E's hydro system is already subject to Federal Energy Regulatory
< Commission regulation, although many consumer groups in the state don't
< seem to understand that fact. Under the reorganization plan, the Diablo
< Canyon nuclear plant would become a wholesale provider with a
< FERC-approved tariff. PG&E's pipeline system, historically a "Hinshaw"
< pipeline not subject to federal jurisdiction, would become a traditional
< interstate system under FERC jurisdiction.
< The politicians and regulators quickly recognized what PG&E would do and
< have been gnashing their teeth furiously since the announcement. But it
< appears there is little they can do other than lament. The plan would not
< raise rates, so the court has no reason to consult with the CPUC. And
< federal law clearly trumps state law when it comes to protecting
< creditors.
< The fact that the creditors are lined up behind the reorganization plan is
< the worst news the state could hear. According to bankruptcy experts, it
< is highly unlikely that the court would reject a plan that the creditors
< endorse. Because they get all their money paid, with interest, the
< creditors are largely made whole (the largest will have to take some notes
< as part of the repayment).
< Will the bankruptcy reorganization plan lead Southern California Edison
< into bankruptcy? There are two lines of argument on this question, both
< valid. One suggests that the plan will lead Gov. Gray Davis and the
< backers of his Edison bailout to push harder for quick action, lest Edison
< decide it can do better in court than it can in the Legislature. The other
< line argues that PG&E's plan will lead Edison's creditors to put the
< utility quickly into Chapter 11 involuntarily.
< The Reuters news service last week reported that power generators Mirant
< Corp. and Reliant Energy are looking for a third creditor to push the
< company into involuntary bankruptcy. Sources indicate that the city of
< Long Beach may be the third creditor needed to push the state's second
< largest utility into bankruptcy
< Ted Craver, chief financial officer of Edison International, the utility's
< parent, told a conference call to creditors last week that the company
< would not voluntarily seek bankruptcy protection and would "vigorously
< oppose any involuntary bankruptcy petition." But under bankruptcy law,
< according to legal experts, once the creditors file, there is little
< Edison could do.
< In addition, the unveiling of the PG&E plan last Thursday will embolden
< Republicans in the Legislature, and perhaps some Democrats, to put a
< rescue package for SCE on hold. The PG&E filing has much to recommend
< itself to both Republican and Democratic legislators. It does not raise
< retail rates. It does not involve any form of a state "bailout" of the
< utility. It provides a clear path for the state to get out of the energy
< procurement business.
< -- Kennedy Maize
<
<