HOUSTON, Feb. 8, 2002 — A US bankruptcy judge’s rejection of Pacific Gas & Electric Co.’s request for a preemptive exemption from state laws and regulations is a “complete and utter rout for PG&E,” Gary Cohen, general counsel the California Public Utilities Commission, said Friday.
In his Thursday ruling, Judge Dennis Montali rejected “outright” Pacific Gas & Electric’s “across-the-board, take-no-prisoners preemption strategy” in the company’s proposed reorganization plan. The California utility wants to transfer $8 billion in assets, including hydroelectric plants, transmission lines, and thousands of acres of land, to its federally regulated parent, effectively removing them from state regulation.
The utility also wants to charge market rates for electricity in order to borrow more than $4 billion and pay creditors. Presently, state regulators set electricity rates. The company has said these measures are necessary to pay off $13 billion in debt and restore its investment grade credit rating.
After the ruling became public, PG&E Corp. shares declined 4.44% to $20.44/share in midafternoon trading on the New York Stock Exchange. Nearly 4 million shares were traded, compared to average volume of 1 million shares. The stock is near its 52-week high of $22.39, compared to its low of $6.50/share.
While Montali found no “express preemption” of nonbankruptcy law permitting wholesale preemption of state law, he said “the plan could be confirmed,” if Pacific Gas & Electric can show particular elements of implied preemption.
Responding, Pacific Gas & Electric Friday said the company intends to move forward with its reorganization plan, taking into account the court’s direction state law may be “preempted on a showing of the need for preemption” to implement its plan.
Cohen predicted the burden which the judge imposed on Pacific Gas & Electric to make its case is “so high as to be unsurmountable.” While the PUC has not released details of its reorganization proposal, Cohen said it will show reorganization is possible without preempting any state law.
The California PUC has asked to file its own reorganization plan with the court, using $5 billion in cash PG&E has on hand, Cohen said. He said the company can use the money to pay off creditors without having to sell or transfer assets.
Montali directed Pacific Gas & Electric to respond by Feb. 21 to the PUC’s alternative reorganization plan. He set a Feb. 27 hearing.
Cohen said he is believes Montali’s ruling will cause creditors to “flee and come knocking at our door. I am confident creditors will see a simple and timely path to get their money [under the PUC plan],” he said. Pacific Gas & Electric, the utility unit of PG&E Corp., filed for protection from creditors under Chapter 11 of the bankruptcy code in April 2001, after it could no longer pay for skyrocketing wholesale electricity.
Consumers, the California state attorney general, and environmentalists also have filed objections to the company reorganization plan.