PG&E reorganization plan creates concern among advocates, legislators

By Kathleen Davis, Associate Editor

In late September, bankrupt California utility Pacific Gas & Electric (PG&E) filed their reorganization plan. Under the terms of the plan, the utility will split off from its parent company, PG&E Corp., by the end of 2002.

“This plan is an achievable solution that will enable Pacific Gas & Electric Co. to move out of Chapter 11 as a financially strong business positioned to continue safe, reliable and responsive delivery of gas and electricity to its customers, pay all valid creditor claims in full, and do so without asking for a rate increase or a state bailout,” said Robert D. Glynn, Jr., chairman of Pacific Gas & Electric Co. and chairman, CEO and president of PG&E Corp.

“And the plan will enable us to provide long-term growth prospects to shareholders,” he added.

Know the plan

The reorganized Pacific Gas & Electric Co. will own and operate the existing retail electric and natural gas distribution system, according to the company.

Electric generation and transmission as well as natural gas transmission-which all currently fall under Pacific Gas & Electric Co. territory-will be passed up to parent company PG&E Corp.

According to PG&E Corp., the plan will allow the two restructured companies to pay all valid creditor claims in full. They stated that the plan will provide creditors with about $9.1 billion in cash and $4.1 billion in notes. Cash will be distributed to those with claims under $100,000 and most secured creditors. Unsecured creditors with claims of more than $100,000 will be paid 60 percent in cash, 40 in notes.

After the restructuring, PG&E Corp. will have three new companies under its umbrella: one for electric generation, one for electric transmission and one for new gas transmission. While PG&E Corp. has pointed out in detailed statements that the three new businesses will be “California companies,” some see the shift of the assets to the parent company as an attempt to circumvent state regulators.

Devil in the details

California Attorney General Bill Lockyer “expressed concerns” that PG&E’s bankruptcy reorganization is an attempt to shift oversight from state to federal authority.

“We are looking closely at the PG&E reorganization plan because of serious concerns that the utility is seeking to evade further scrutiny by the California Public Utility Commission (CPUC) and is seeking to avoid state laws that apply to their transfer of assets,” he stated.

PG&E responded that the Attorney General’s statement was “completely false.”

In an answering release, PG&E stated that the company’s reorganization plan, in fact, “expressly spells out the approvals that will be sought from the SEC [Securities and Exchange Commission],” and goes on to list the page numbers within the plan that apply.

Lockyer is not alone in his questions, however. Even Gov. Gray Davis has questioned the plan.

“I’m troubled that this plan transfers more power to the federal government, which, during the last 18 months has by-and-large treated California ratepayers shabbily,” he stated.

And consumer groups are also none-too-happy.

Doug Heller, consumer advocate with the Foundation for Taxpayer and Consumer Rights stated that the plan is “designed to enrich the parent company at the public’s expense” and went on to say that the shift of generation and transmission to PG&E Corp. is an attempt “to rip-off the people of California once more.”

The CPUC is also expected to object, according to president Loretta Lynch.

PG&E released a statement entitled “Myths vs. Facts” in response to the concerns. In it, the company stated once again that they are not trying to escape regulatory control. They reiterated that the only change in regulation is the proposal that the Federal Energy Regulatory Commission (FERC) assume jurisdiction over rates from generation and gas transmission assets.

“To recap, electric transmission is already FERC-regulated; gas transmission is FERC-regulated in every other state and is voluntary under CPUC regulation in California. Power generation was declared by the state to become FERC-regulated after March 2002,” the company stated.

However, consumer advocates and legislators have also pointed out that the plan violates state law Abx6, which prohibits the sale of utility assets until 2006. PG&E responded that any of three ways they believed could restore credit worthiness (rate hike/bailout, asset sale, reorganization/refinancing) would require a collision with state law in one form or another.

They even stated that SCE’s recent settlement required the CPUC to “ignore its past interpretation of state law.”

Absolut Power

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Absolut Vodka uses a unique billboard made up of solar panels in the shape of an Absolut bottle to respond to California’s energy crisis. The panels harness the sun during the day and use that stored energy to illuminate the two-word headline “Absolut Alternative” at night. Created by Absolut’s advertising agency TBWA Chiat/Day, the 50 ft. by 18 ft. billboard-with more than 210 light bulbs-is on Sunset Boulevard near Sweetzer Avenue in L.A. Photo courtesy of TBWA Chiat/Day.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at

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